Project investment sees immense growth worldwide — U.N. report
Posted on June 20th, 2007By Nathanial Gronewold
Greenwire: UNITED NATIONS — Worldwide investment in renewable energy is booming, eclipsing the dot-com boom and showing solid prospects for continued growth, according to a report released today by the U.N. Environment Program.
There was $70.9 billion invested globally in 2006, a 43 percent jump over the previous year, the report says. The trend appears to be continuing, with the first quarter of 2007 showing impressive growth in funds flowing to wind, solar, biofuels and other alternative energy sectors.
“What we tend to find is that investors will find a way get their money into the sector one way or another. It may not be the most obvious or direct routes, but they are finding ways to help build that capacity,” says Chris Greenwood of New Energy Finance, a consulting firm specializing in renewables.
UNEP issued the 46-page report “Global Trends in Sustainable Energy Investment 2007″ on the opening day of the fourth annual Renewable Energy Finance Forum in New York. The survey was conducted with the aid of experts from BP, RBC and Fortis Bank.
The U.N. study openly rejects more pessimistic forecasts by the International Energy Agency and other energy sector pundits, arguing that growth in the market would not be so strong if investors were truly wary of future prospects.
“There is an underlying trend in which the contribution of renewable energy and also energy efficiency technologies is set to play a much more significant role in the years ahead,” UNEP director Achim Steiner said in a teleconference.
The report compares the current atmosphere in alternative energy investment to the ill-fated Internet bubble of the late 1990s, with a notable difference: “not only does the volume of investment flowing into clean energy dwarf the dotcom boom, clean energy sector growth has continued for longer than the dotcom boom lasted and is showing no sign of abating.”
Despite the upbeat assessment, the report also acknowledges a glaring disparity between sustainable energy’s share of global investment and actual energy output. Renewables draw 18 percent of global investment for current energy production but represent only 2 percent of installed capacity.
UNEP also acknowledges that major oil producers are less active in the renewable energy market but notes that they are also show signs of growing interest.
“In the scale of things their activities in clean energy are still very small,” Greenwood said. “But we talk to them regularly and they are increasing their activities.” He noted that European companies such as BP and Shell are comparatively more engaged than U.S. firms, although there is evidence that clean energy is “on their radar” as well.
Report highlights
Among the survey’s findings:
- More than $100 billion was invested in renewables worldwide in 2006, up from $80 billion in 2005. Of that, $70.9 billion was new money pouring into companies and new sectors, while about $30 billion was spent on mergers, acquisitions and refinancing.
- The $70.9 billion figure represents a 43 percent increase in investment over 2005.
- The growth trend continued into 2007, with 60 percent more venture capital and private equity flowing to the renewable energy industry in the first quarter of 2007 over the previous one. Stock values are also up, with the WilderHill New Energy Global Innovation Index (NEX) up 2 percent in the same quarter.
- Investment in wind power dominates the mix, accounting for 38 percent of total global investment. Biofuels and solar power followed at 26 percent and 16 percent, respectively.
- The strongest markets are in United States and the European Union, with venture capital increasingly important in the United States and stock market financing leading the way in Europe.
- More investment capital is flowing to developing countries, mostly to Brazil, China and India. China alone accounted for 9 percent of global renewable energy investment in 2006.
The increased investment is “going into companies that are building new technologies to bring to market, it’s going into equipment manufacturers who are scaling up their operations to produce more wind turbines or build more biofuels plants, and it’s going into the financing of the physical assets, so the wind farms, solar parks that people are now seeing on their landscapes,” Greenwood said.
Where the money’s going
The study shows that last year $16.3 billion was invested in alternative energy in the United States. Most of that money was drawn from asset financing, but venture capital and private equity enjoyed the strongest percentage growth over the previous year. The total volume of investments in the United States was surpassed by more mature markets in the 27 E.U. member states, where over $23 billion was spent in 2006.
But although the European Union is home to the largest number of publicly listed companies in the renewable energy industry, “U.S. companies [are] receiving more technology and private investment,” says the report. The United States also leads the world in the number of clean energy “business incubators.”
Outside the OECD, Brazil, China and India are grabbing an ever-increasing share of global investment in renewable sources. Biofuel is the dominate player in Brazil, while wind power leads the market in India.
China, on the other hand, showed more investment activity in solar power. Chinese firms are increasingly active players in solar technology manufacturing, and there are indications that the government is set to significantly boost installed solar capacity. The U.N. report suggests that China could one day rival Germany and Japan, the current world leaders in installed solar arrays.
Nick Gardiner of Fortis said that, in the long run, banks and investments firms require more supportive and predictable legal and regulatory structures. “Financing in renewable projects is bankable,” he said. “What are the banks looking for? Well, we are looking for supportive, long-term regulatory frameworks and clear tariff mechanisms.”