Global Trends in Sustainable Energy Investment
Global Trends In Sustainable Energy Investment
The year 2008 was another milestone for investment in sustainable energy, especially in view of the difficult overall investment climate. A total of $155 billion was invested in companies and projects globally, a more than four-fold increase on 2004. As compared with 2007, however, investment growth was only 5%, in stark contrast to the growth rates of over 50% in previous years (see Figure 1). This was mainly due to the global financial crisis, which had a significant impact on investment in the second half of the year: investment in the second half of the year was down 17% on the first half, and down 23% on the final six months of 2007.
President Obama has clearly stated his support for a federal cap-and-trade scheme and a strengthened global scheme may result from the negotiations in Copenhagen in December. A system of interlinked policy-led financial markets, similar to currency markets, is emerging, where every major economy puts a price on greenhouse gas emissions, thereby providing another enabler for sustainable energy. 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.
During 2008, wind was the largest sector in terms of new investment, while solar took second place by surpassing biofuels. Total financial investment in wind was $51.8 billion, down 1% on 2007, and in solar was $33.5 billion, up 49% from the previous year (see Figure 4). A large proportion of this investment went into wind and solar projects, particularly in the established markets of the European Union and North America, but also increasingly in China, Eastern Europe and Latin America.
KEY FINDINGS
• Due to the economic downturn, new investment in sustainable energy was $155 billion in 2008, slightly (5%) higher than 2007’s $148 billion – but the second half-year figure was down 17% on the first half, and 23% lower than in the final six months of 2007.
• Clean energy resisted the global financial crisis more successfully than many other sectors for much of the year, helped by sky-high oil prices, but felt the impact from September 2008 onwards. Shares prices fell 61%, more sharply than the overall stock market, and have since only made up a fraction of the lost ground. Investor mood will be critical to continued growth. One of the reasons sustainable energy share prices underperformed in late 2008 was a general fight from risk and growth sectors.
• Leading governments committed over $180 billion to sustainable energy within their various stimulus packages, but there has been a big divergence between countries in the generosity and clarity of their measures. An enormous monetary stimulus has also been applied through the drop in global interest rates, but although central bank rates are at historic lows, banks are still too worried about solvency to lend. When lending does start to flow, renewable energy projects stand to be among the early beneficiaries, as they produce a reliable stream of revenues from good counter-parties, the utilities.
• The number of companies under incubation fell slightly during 2008. Incubated companies number 338, down just under 2% from last year. The large majority of incubated companies were in the solar sector with 73, or 21% of the total number of incubated companies. Solar is followed by wind, biofuels, and energy efficiency supply and demand side sectors.
• In 2008, venture capital and private equity funds invested $19.3 billion in renewable energy and energy efficiency firms, an increase of 43% compared with 2007. Of this, $13.5 billion represented “new” money – everything except private equity buy-outs – an improvement of 37% on the $9.8 billion of fresh investment in 2007. This money helped a broad spectrum of young companies to develop technologies in fields as diverse as carbon capture and storage and tidal power, while enabling those further down the track to ramp up and commercialise production.
• Investment in clean energy firms via the world’s stock markets tumbled 51% to $11.4 billion, from $23.4 billion in 2007. Activity noticeably slowed in the second half of 2008, and the public markets have effectively been closed for clean energy initial public offerings so far in 2009. Fewer companies chose to make their debut on the public markets. In 2008, 18 companies floated on the world’s main exchanges raising a total of $3.6 billion. This was 30 fewer than during 2007, when 48 clean energy firms completed IPOs raising $13.6 billion.
• Financing of sustainable energy assets grew by 12.9% in 2008 to $116.9 billion, the bulk of which was for new power generation projects. The terms of debt finance deals for renewable energy projects in Europe have become tougher since October 2008, but the ratification of President Obama’s $787 billion stimulus package in February 2009 offers a number of new project financing solutions to developers in the US. New-build wind project financing increased during 2008to $47.9 billion from $41.3 billion in 2007, but collapsed in the first quarter of 2009. New-build solar project financing underwent a dramatic increase in 2008, rising to $22.1 billion from $12.1 billion in 2007. However, it too fell sharply in the first quarter of 2009.
• The volume of money changing hands in mergers and acquisitions of clean energy companies fell 16.2% to $21.7 billion. The lack of available credit, plunging stock markets and a worldwide financial crisis made it difficult for deal-makers. This left equipment manufacturers to garner the largest slice of mergers and acquisitions investment, taking $9.4 billion, or 43.3% of the $21.7 billion total. Deals targeting developers saw the biggest year-on-year increase. The $7.3 billion recorded in 2008 was up 156% on 2007 as consolidation swept through Europe’s wind market. M&A activity is likely to increase as well-capitalised players take advantage of lower clean energy company valuations and some distressed opportunities.
• Far fewer clean energy funds were launched in 2008. In 2007, private clean energy funds were being launched at an average rate of one a week; in 2008, this slowed to one a month. Nevertheless, a number of large funds completed funding rounds during 2008, and a number of new funds have been announced in recent months. Now that markets have lost 40% or more of their value, investors are beginning to venture back into the market. Private and project equity funds have become more prominent in 2008, responding to the effective closure of the world’s public markets and very limited access to debt.
• Despite the turmoil in the world’s financial markets, 2008 was another year of record growth in the carbon markets. Transaction value in the global carbon market grew 87% during 2008, reaching a total value of $120 billion. Currently, the most liquid markets are the European Union Greenhouse Gas Emission Trading System (EU-ETS) and the global Kyoto compliance market. The EU-ETS, which started its second phase in 2008, covers some 45% of Europe’s total greenhouse gas emissions. It has dominated carbon credit trading to date, accounting for 79% of transactions by value. Despite some downward movement in price towards the end of 2008 as a result of the global economic downturn, the average settlement price of European Union Emissions Allowances (EUAs) closed the year at around $25 per tonne.
• Financial investment in developing countries increased to $36.6 billion in 2008, an increase of 27% on 2007, whilst investment in developed countries fell by 1.7% to $82.3 billion. Developing countries’ share of total global financial investment increased to 31% in 2008, from 26% in 2007. China led investment in Asia, with $15.6 billion of new investment, mostly in new wind projects, and some biomass plants. Investment in India grew 12% to $3.7billion in 2008, of which asset finance represented $3.2 billion, up 36%. Brazil accounted for almost all renewable energy investment in Latin America in 2008, receiving $10.8 billion, up 7% from 2007.
Source: New Energy Finance; Global Trends in Sustainable Energy Investment
2009
