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."
Contacts:
Nick Nuttall, UNEP Spokesperson
Robert Bisset, UNEP Spokesperson
