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Clean Energy Investments Charge Forward Despite Financial Market Turmoil
With end of cheap oil, renewables and energy efficiency attracts fast-growing interest;
New investment surpasses $148 billion in 2007, a 60% rise from 2006, Growth continues in 2008, UNEP study says
Climate change worries, growing support from world governments, rising oil prices and ongoing energy security concerns combined to fuel another record-setting year of investment in the renewable energy and energy efficiency industries in 2007, according to an analysis issued Tuesday July 1 by the UN Environment Programme(UNEP).
"The clean energy industry is maturing
and its backers remain bullish. These findings should empower
governments-both North and South-to reach a deep and meaningful new
agreement by the crucial climate convention meeting in Copenhagen in
late 2009," Achim Steiner, the head of UNEP, says.
Over $148 billion in new funding entered
the sustainable energy sector globally last year, up 60% from 2006, even
as a credit crunch began to roil financial markets, according to the
report, "Global Trends in Sustainable Energy Investment 2008," prepared
by UK-based New Energy Finance for UNEP's Paris-based Sustainable Energy
Finance Initiative.
Wind energy again attracted the most
investment($50.2 billion in 2007), but solar power grew most
rapidly:attracting some $28.6 billion of new capital and growing at an
average annual rate of 254% since 2004, driven by the advent of larger
project financings.
The picture since the end of 2007 has
been somewhat subdued across the sector, with only mergers and
acquisitions up as several substantial wind developers sold their
portfolios-many realising that with the tightening up of the credit
markets they could not finance the growth themselves-and the US ethanol
industry undergoing restructuring.But in the second quarter of 2008 most
areas of investment rebounded, even as global financial markets remained
in turmoil. Sustainable energy venture capital and private equity in Q2
2008 was up 34% on Q2 2007, new build asset finance was up 8% and public
market investment showing a strong recovery with the IPO of Portuguese
utility EDP's renewable energy business, EDP Renovaveis.
"Just as thousands were drawn to
California and the Klondike in the late 1800s, the green energy gold
rush is attracting legions of modern day prospectors in all parts of the
globe,"says Mr Steiner, who is also a UN Under-Secretary General.
"A century later, the key difference is
that a higher proportion of those looking for riches today may find
them. With world temperatures and fossil fuel prices climbing higher, it
is increasingly obvious to the public and investors alike that the
transition to a low-carbon society is both a global imperative and an
inevitability. This is attracting an enormous inflow of capital, talent
and technology. But it is only inevitable if creative market mechanisms
and public policy continue to evolve to liberate rather than frustrate
this clean energy dawn.
"What is unfolding is nothing less than
a fundamental transformation of the world's energy infrastructure."
Most of the new money flowed into Europe,
followed by the USA. However, China, India and Brazil draw growing
investor interest, their share of new investment growing from 12% in
2004 to 22% in 2007, an increase in absolute terms of 14 times, from
$1.8 billion to $26 billion.
Total 2007 sustainable energy
transaction volume was $204.9 billion, of which $98.2 billion went into
new renewable energy generation (especially wind in the US, China and
Spain), $50.1 billion went into technology development and manufacturing
scale-up, and $56.6 billion changed hands through mergers and
acquisitions.
With 31 gigawatts of new installed
generation, sustainable energy accounted for 23% of new power capacity
added globally in 2007, about 10 times that of nuclear.
Sustainable energy companies accounted
for 19% of all new capital raised by the energy sector on the global
stock markets in 2007.
"Investment in the sustainable energy
sectors must continue to grow strongly if targets for greenhouse gas
reductions and renewables and efficiency increases are to be met,"says
the report.
"Investment between now and 2030 is
expected to reach $450 billion a year by 2012, rising to more than $600
billion a year from 2020. The sector's overall performance during 2007
and into 2008 sets it on track to achieve these levels."
Says Michael Liebreich, CEO of New
Energy Finance Ltd, a leading provider of research and analysis on the
clean energy and carbon markets and co-author of the report: "2007 was a
banner year for the clean energy industry. Wind continued its strong
progress, with installed capacity passing the 100 GW mark. Solar is
maturing rapidly, with heavy investment to ease the silicon bottleneck
and new thin-film technology beginning to reach scale. And there are
plenty of other technologies lining up to be the next ones to begin a
real march to scale-including biomass and geothermal. Carbon Capture and
Storage(CCS)is the only sector where we did not see as much progress as
we had expected, with the regulatory and funding environments for these
projects remaining murky and timelines for the first commercial projects
being extended."
The report offers a host of insights
into sustainable energy investment worldwide:
Wind
Wind attracted more investment globally
last year than any other non-fossil fuel based technology, including
large hydro and nuclear power. In Europe and the US wind capacity
additions in 2007 on their own accounted for 40% and 30%, respectively,
of new power capacity.
Iberenova, the wind power development
arm of Spanish power giant Iberdrola, raised $7.2 billion in a landmark
flotation in December 2007, the largest Spanish IPO ever and the fourth
largest public deal of the year.
Global installed wind capacity surpassed
100GW in March 2008.
Ethanol
With US feedstock costs up and ethanol
prices down, venture capital and private equity investment in biofuels
fell by almost one-third in 2007, to $2.1 billion. However, biofuels
investment has not dried up altogether, shifting to Brazil, India and
China.
Solar
Solar surged ahead in 2007, increasing its
share of almost every investment category. Solar attracted by far the
most venture capital and private equity investment ($3.7 billion),
although biomass and waste to energy saw the fastest (432%) growth.
During 2007 Chinese solar companies
raised $2.5 billion on the US and Europe equity capital markets.
Energy efficiency
Investment in energy efficiency technology
reached a record $1.8 billion, an increase of 78% from 2006.
North America attracted most energy
efficiency investment during 2007, followed by Europe, despite the fact
that its energy legislation lags behind Europe.
Buildings offer by far the greatest
energy saving potential (and represent the source of 40% of CO2
emissions). Industry and the transport efficiency follow, with the power
sector (perhaps surprisingly) as the sector with the least scope for
savings.
According to the International Energy
Agency, each $1 invested in energy efficiency an average avoids more
than $2 needed to create new supply.
Europe still leads
The EU remained the leading region for
investment, particularly later-stage financing. Supportive policies, as
well as an investor base that is comfortable with financing renewable
energy projects and more intense competition for deals, drove European
asset finance to a record level of $49.5 billion in 2007. This was 62%
of asset finance worldwide.
Strong growth in USA
In the USA acceptance of sustainable energy
became more widespread, extending beyond its traditional heartland of
California, with Texas leading the wind energy charge. A new
administration in 2009 is expected to make renewable energy and energy
efficiency a political priority while recent uncertainty in the US
(particularly over the possible introduction of a CO2 regulations) has
put a significant number of coal-fired generation plants on hold.
The US financial sector is also gearing
up for a major shift in political attitude. Citi, JPMorgan Chase and
Morgan Stanley have jointly launched a set of "Carbon Principles", which
will guide how they lend to and advise major power companies in the US.
The banks developed the principles to
evaluate risks in financing carbon-emitting projects, given the growing
uncertainty around regional and national climate change policy. They
will also consider power companies' inclusion of energy efficiency and
renewable resources in their portfolios as part of an "enhanced
diligence process".
China
During 2007, investment in non-hydro
renewables capacity in China increased by more than four times, to $10.8
billion, and new wind capacity doubled to 6 gigawatts.
The report says the 2008 Beijing Olympic
Games "sharpened the country's political resolve and strengthened
programmes to promote cleaner generation and cut energy intensity."
Besides a surge of Chinese solar
companies listing on US and European stock markets, public market
activity is also growing at home. Notably, the Chinese wind manufacturer
Goldwind raised $243 million last year in the Shenzhen Stock Exchange's
first IPO related solely to renewable energy.
Brazil
Brazil is the world's largest renewable
energy market, thanks to its long established hydropower and bioethanol
industries.
Sustainable energy investment in Brazil
continued to be dominated by ethanol in 2007, as investor interest
shifted there from the beleaguered US ethanol market. Infinity
Bio-Energy(listed on London AIM) and the US agribusiness giant Cargill
both made important investments in the sector.
Beyond ethanol production, investment in
sugar cane cogeneration, biodiesel production and wind generation are
also picking up.
India
Asset financing in India grew
significantly, to $2.5 billion, mostly for 1.7GW of new wind projects.
These installations place India fourth in the world, both in terms of
new capacity added in 2007 and total installed capacity.
Funds raised on Indian stock exchanges
reached $628 million in 2007, although companies increasingly looked to
foreign markets for new capital, raising $1.4 billion overseas in 2007.
Public market activity was marked by a series of Foreign Currency
Convertible Bonds (FCCBs) from established Indian renewable energy
companies such as Suzlon($500 million raised) and Moser Baer($150
million).
The year 2007 also saw several
aggressive cross-border deals involving Indian or Chinese acquirors,
including Suzlon's $1.6 billion acquisition of Repower and China
National Building Material Group's purchase of German turbine blade
manufacturer NOI Rotortechnik.
Africa
Africa continues to lag other regions in
terms of sustainable energy investment. Asset finance, however, was up
in 2007 to $1.3 billion (five times as much as in 2006), reversing a
gradual decline since 2004 and bearing witness to increasing installed
renewable capacity. Investment was mainly in biofuels and geothermal.
Promising large-scale solar developments were also initiated in North
Africa and some signs of change in South Africa, where targets for
renewable energy have been set and the country's first wind farm
commissioned.
Sub-Saharan Africa, "arguably the region
that has the most to gain from renewable energy," remains largely
unexploited, according to the report.
Carbon finance shifting to the
private sector
$13 billion had been invested in carbon
funds by the end of 2007, an important source of investment for "Clean
Development Mechanism" projects in developing countries. Most new
investment was into private funds as carbon trading becomes more
established.
The first quarter of 2008 saw the
emergence of private interest in the post-Kyoto market, with investors
beginning procuring post-2012 CDM credits eligible for trading in the EU
Emissions Trading Scheme.
Market broadens, diversifies into
emerging technologies
Investments not only grew in 2007, but
broadened and diversified. Mainstream capital markets are now fully
receptive to sustainable energy companies, according to the report.
2007 also saw greater activity in
so-called "next generation technologies," such as cellulosic ethanol,
thin-film solar technologies and energy efficiency.
Early venture capital investment surged
112% to $2 billion in 2007, boosted by interest in emerging renewable
technologies, rather than just those on the brink of commercialisation.
"The willingness to look beyond mature
technologies suggests that investors are taking renewable energy and
energy efficiency increasingly seriously," the report says.
Public investment
General public investments, through stock
and other markets, more than doubled in 2007 to $23.4 billion, up from
$10.5 billion in 2006.
The Wilderhill New Energy Global
Innovation Index(NEX) rose 57.9% in 2007. It then fell 17.9% in first
quarter of 2008 but recovered half this loss in the second quarter.
Meanwhile, assets under management in
clean energy funds rose to $35 billion in 2007.
A record 17 new clean energy public equity
fund launches occurred in 2007, up from just five in 2006. Several of
these were 'climate change' funds launched by mainstream investment
firms including HSBC, F&C, Schroders, Deutsche Asset Management and
Virgin Money.
The arrival of such heavyweights in the
market is "likely to encourage the larger publicly listed companies they
normally invest in to expand into sustainable energy and other low
carbon sectors,"says the report.
Research & Development
Research & Development spending on clean
energy and energy efficiency was $16.9 billion in 2007, including
corporate R&D of $9.8 billion, and government R&D of $7.1 billion.
Europe and the Middle East saw the most
corporate R&D activity, followed by the Americas and then Asia. Patterns
of government R&D are the reverse, with Asian governments(notably Japan,
China and India)investing relatively heavily in R&D.
Corporate Mergers & Acquisition
Corporate Mergers & Acquisition activity
increased 52% to $25.7 billion in 2007.
Says Mohamed El-Ashry, Chair of the
Renewable Energy Global Policy Network REN21: "One reason for the steady
growth of renewables is simple economics: while the cost of fossil fuel
energy is rising, the costs of renewable energy technology are falling.
And with renewables there are no fuel costs-and no carbon emissions."
According to Yvo de Boer, Executive
Secretary of the United Nations Framework Convention on Climate
Change:"The positive trend in the renewable energy market is at least in
part a business response to a policy expectation. If that expectation is
not met, the conventional bottom-line will be the main driver for
investment decisions.
"According to the IEA, a massive amount
of US $20 trillion is projected to be invested to meet the world's
energy demand in 2030. If these investments are not made in a
climate-friendly way, emissions of green house gases might go up by 50%
in 2050, while science tells us they need to be cut by 50% in 2050. I
hear businesses crying out for clear policy signals to make the right
investment decisions today. Setting a long term target for 2050 is
useful, but I think it would give investors much more clarity if rich
countries would indicate where they want to be in 2020 or 2030."
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For more information contact:
Nick Nuttall, UNEP Spokesperson, on +41-79-596-5737 (m); Nick.Nuttall@unep.org
Robert Bisset, UNEP Spokesperson for Europe,+33-1-4437-7613, +33-6-2272-5842(m),Robert.Bisset@unep.fr
Terry Collins +1-416-538-8712; +1-416-878-8712 (m),TerryCollins@rogers.c
Dawn L. Van Zant - President
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Email : dvanzant@investorideas.com
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