June 15, 2009
Despite a depressed world economy, renewable energy investments drew the majority of investment dollars that went into the global power sector last year. That enabled the green space to account for 40 percent of all additions to generation. As to be expected, wind and solar power garnered the preponderance of capital.
The principal factors that will drive future investment in sustainable fuels and technologies will be the global focus on climate change and energy security in combination with a more promising financial picture. Indeed, scores of countries are preparing for the next round of climate talks that are to occur in Copenhagen, Denmark, in December and which will take over once the Kyoto Protocol expires in 2012.
According to the United Nation's Environment Program, $155 billion was invested around the globe in 2008 in clean energy companies. Perhaps the promising sign is that the total tally tops that of 2007 -- a banner year for such investments -- by 5 percent. Commitment made by developing nations such as China and Brazil get the credit. New investments in the first quarter of 2009, however, fell by 53 percent to $13.3 billion compared to the same period in 2008, reflecting the depth of the global financial crisis.
"Without doubt the economic crisis has taken its toll on investments in clean energy when set against the record-breaking growth of recent years," says Achim Steiner, the program's executive director. "Investment in the United States fell by two percent and in Europe growth was very much muted."
The goal of the Copenhagen talks is to build on the spirit of Kyoto, which requires 37 industrial nations to cut their greenhouse gases by 5 percent by 2012. The next round of negotiations is being inspired by a series of reports by the world's leading scientists who have warned of environmental devastation resulting from hotter temperatures. To avoid consequences ranging from rising sea levels to severe droughts, those experts say that emissions must be cut by 25 percent to 40 percent by 2020 from 1990 levels.
If the commitments are binding and those objectives can be reached, then the UN is bullish on the future prospects of clean tech. Annual investments in renewable energy, energy efficiency and carbon capture and storage need to reach $500 billion by 2020, it says, representing an average influx of 0.44 percent of gross domestic product.
Short term, the UN says that the developing world is taking great strides to implement more renewable energy. China, for example, became the world's second largest wind market in terms of new capacity added. It is also the world's biggest photovoltaic manufacturer. Meantime, others such as Brazil, Chile, Mexico, Peru and the Philippines are enacting progressive laws to foster green energy development. Globally, renewable energy accounts for a small percentage of all electric power generation.
Central Message
As the global economy went into a tailspin in the latter part of 2008, private capital in all segments of the economy drastically fell. While clean tech investments were no different, they generally have been favored by policymakers in the four corners of the world. Here, President Obama has funneled billions into such projects.
The UN says that sustainable energy investments are central to government fiscal stimulus packages announced in recent months, accounting for an estimated $183 billion of commitments to date. Strategies differ. But it says that the United States and China are the leaders, with each devoting about $67 billion to the cause -- all an indication of the collective political will throughout the world to create a cleaner environment and to improve energy independence.
"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," says Michael Liebreich, chief executive New Energy Finance that authored the UN's study.
He adds that governments cannot drag their feet and that they must release soon their stimulus funds. Mandatory renewable energy targets and tax incentives are positive starts, Liebreich says, but they are longer-term strategies. Therefore, public policy must focus on the "urgent needs" of investors, necessitating public backing for now.
Over the next two years, the UN estimates that a minimum of $750 billion -- or 37 percent of current economic stimulus packages and 1 percent of global GDP -- is needed to finance a sustainable economic recovery. The money must be channeled, it adds, to five key sectors of the global economy that involve buildings, energy, transport, agriculture and water.
While the global economy won't turn around on a dime, the stimulus monies used in this country are expected to be allocated in short order to shovel-ready projects. Beyond that, the broader legislative measure that was signed in February gives investors a choice between taking a production tax credit or an investment tax credit on many renewable projects that gives cash up front. Even then, developers must still be able to raise the balance of the funds necessary to jump start programs.
Once the traditional debt and equity markets ease, the public programs both here and abroad will be scaled back. Until then, the thinking is that only the national governments have the muscle to keep global commerce running. Along those lines, investment in sustainable fuels and new energy technologies is the place to focus.
The UN will be taking that message to Copenhagen in December. If the world community can reach a consensus there, the body says, it would then set in motion the building blocks for a greener future and renewed economic development.
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Ken Silverstein EnergyBiz Insider Editor-in-Chief
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