Global Renewable Energy Investment: Two Reports

published: 2011-12-05 10:13 | editor: | category: Analysis

World investment in new renewable energy capacity and technologies is expected to total $7 trillion over the next 20 years, according to a new report released on November 16, 2011, by Bloomberg New Energy Finance.

Meanwhile, renewable energy technology is becoming increasingly cost competitive and growth rates are in line to meet levels for “a sustainable energy future,” the International Energy Agency (IEA) said in a report on November 23, 2011. The renewable electricity sector has grown rapidly in the past five years and now provides nearly 20 percent of the world's power generation, according to the IEA report titled Deploying Renewables 2011: Best and Future Policy Practice.

By 2020, annual global spending on renewable energy will rise to $395 billion, up from $195 billion in 2010, according to the London-based Bloomberg New Energy Finance’s report titled Global Renewable Energy Market Outlook, which gives the firm’s latest forecasts on the size of the world renewable energy markets out to 2030.  By 2030, total annual global spending will rise to $460 billion. As a result, in 20 years about 15.7 percent of total energy will come from renewable energy sources – including hydropower – up from 12.6 percent in 2010.

The Big Investment Winners

The big winners over the next 20 years will be the emerging renewable energy markets in Latin America, Asia, the Middle East and Africa, according Bloomberg. And by 2020, these markets outside of the EU, U.S., Canada and China will account for 50 percent of global annual investment in renewable energy capacity.

Europe is expected to remain one of the biggest markets for financing renewable energy projects over the next three years. But Europe will see a dwindling share of world investment as EU governments scale back their clean energy support in the face of ongoing debt problems. According to Bloomberg estimates, growth in the European renewable energy market will resume after 2015 as investments increase in order to meet the EU 2020 renewable energy target.

In the meantime, China will take over the lead in renewable energy financing from Europe by 2014, with an estimated annual expenditure of just under $50 billion. China has already indicated it is committed to spending $468 billion in the next five years on renewable energy and clean technologies - more than double the previous five years, according to the National Development and Reform Commission (NDRC).

The U.S. and Canada are not expected to see a lasting slowdown in project construction either, together amounting to about $50 billion of investment by 2020.

But the most rapid growth is expected to be seen in the rapidly developing economies of India, the Middle East, Africa and Latin America, with a projected growth rate of between 10 and 18 percent per year between now and 2020.

This targeted financing is already evident: The U.S. Export-Import Bank just approved an $18.9 million loan for an Indian solar power project that will import PV panels from SolarWorld AG’s California unit for a 5 MW plant in the western state of Gujarat. That loan will allow Tatith Energies to buy the crystalline-based PVs from SolarWorld, as well as construction services from Massachusetts-based American Capital Energy. As of November 5, 2011, the Export-Import Bank has approved $176.4 million in funds for six solar projects in India.

Meanwhile, the African Development Bank (AfDB) is approving $497 million in financing for a 500 MW Desertec concentrated solar power (CSP) plant in Morocco. The final deal is slated to happen before the end of the year, which will put Desertec one step closer to securing the $9 billion required to build the project. The AfDB announcement came less than a week after the World Bank approved a $297 million loan for the project, which will be the largest in the world when completed in 2016. The project will be built in phases, with the initial phase scheduled to go online in 2014.

Calculating Global Renewable Energy Outlooks

The Bloomberg New Energy Finance projections to 2030 drew on the contribution of over 65 technical experts across all renewable energy technologies and geographical regions and covers asset finance in all the main forms of renewable energy used for electric power generation. The figures presented in the report cover the value of renewable energy assets installed in a particular year, and estimates money spent on renewable energy assets – calculated as annual build (GW) multiplied by country-specific capital cost of the technology. According to the report, in most major renewable energy markets there is a lag of some 2-3 years between when the money is raised and when the project begins operation.

The Global Subsidies Question

The IEA report notes that subsidies in renewable energy technologies that are not yet competitive are justified in order to give an incentive to investing in those technologies that demonstrate clear environmental and energy security benefits. The IEA's report disagrees with claims that renewable energy technologies in general are only viable through such subsidies and are not able to produce energy reliably enough to meet demand.

"Where technologies are not yet competitive, economic support for a limited amount of time may be justified by the need to attach a price signal to the environmental and energy security benefits of RE deployment," the report notes.

The majority of renewable energy growth is taking place in Organization for Economic Co-operation and Development (OECD) countries and in major emerging markets like China, India and Brazil. Most of these OECD countries have large-scale subsidies in place in order to develop such renewable energy technologies and the IEA report notes that "the OECD was the only region where the deployment of less mature technologies (such as solar PV, offshore wind) reached a significant scale, with capacities in the order of GWs."

Conclusions

According to Bloomberg New Energy Finance, their study results indicate that 2010's record renewable energy investment was no fluke despite the recent economic downturn. And the findings of both studies indicate the world is shifting toward more renewable energy even without a global agreement on limiting greenhouse gases. The growth of the solar market is being buoyed by a sharp decline in the cost of PV panels.  Bloomberg New Energy Finance’s report notes that cost reductions will spur deployment of solar power, which (after offshore wind) will undergo the second-fastest percentage growth of all renewable energy technologies from 51GW in 2010 to 1,137GW by 2030. This will require significant capital – an annual average of $130 billion over 2010-30 compared to the $86 billion spent in 2010. According to the IEA report, “Solar has grown at a growth rate of 50.2 percent (CAGR) and installed capacity reached about 40 GW by the end of 2010."

The dip in PV prices has led to consolidation of the PV industry in the United States, including the elimination of companies such as the federally-funded Solyndra. This has also led to a pending trade battle between the United States and China since the U.S. claims its companies have been forced out of the market as a result of illegal subsidies offered by the Chinese government to its PV manufacturers. U.S. Department of Energy Secretary, Steven Chu, had pointed directly at the level of subsidies provided to Chinese PV panel manufacturers as the reason America needs to continue to support a clean energy race with subsidies and grants. But the Bloomberg New Energy Finance report states that “Chinese wind and solar energy companies have left untapped most of the $47 billion in credit lines made available by the government since 2010, undermining arguments that U.S. rivals are facing unfair competition funded by cheap loans.”

In the U.S., where the cash-based incentives which were part of the U.S. stimulus program are due to expire at the end of 2011, tax credits are likely to again become the most important - and maybe only - federal subsidies supporting solar and other renewable energy projects.

The Bloomberg New Energy Finance forecast indicates that investments would boost clean energy as a portion of total world generation capacity to 15.7 percent within 20 years from 12.6 percent last year. The forecast predicts a total of $7 trillion will be spent of renewable energy technologies by 2030. Interestingly, IEA's 2009 World Energy Outlook report concluded that total global investments in renewable technology needs to reach roughly $37 trillion by 2030 in order to curb greenhouse gases.

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