Chinese Wind, EU Small Solar Drive Global Clean Energy Investments Up 32% in 2010

Wind farms in China and small-scale solar systems on rooftops in Europe were largely responsible for last year’s 32% rise in clean energy investments worldwide, according to the latest annual report on renewable energy investment trends issued by the UN Environment Programme (UNEP), "Global Trends in Renewable Energy Investment 2011."

Last year, investors pumped a record $211 billion into renewables – about one-third more than the $160 billion invested in 2009, and a 540% rise since 2004.

For the first time, developing economies overtook developed ones in terms of "financial new investment"- spending on utility-scale renewable energy projects and provision of equity capital for renewable energy companies.

$72 billion was invested in developing countries vs. $70 billion in developed economies. That contrasts with 2004, when new financial investments in developing countries stood at about 25% of those in developed countries.

China, with $48.9 billion in new renewables investments (up 28%), was the world leader in 2010. However, other parts of the emerging world also showed strong growth:

  • South and Central America: up 39% to $13.1 billion;
  • Middle East and Africa: up 104% to $5 billion;
  • India: up 25% to $3.8 billion, and
  • Asian developing countries excluding China and India: up 31% to $4 billion.

Another positive development that has implications for long-term clean energy developments is the increase in government research and development. That category of investment climbed over 120% to well over $5 billion.

Small Scale Solar in Europe the Other Growth Driver

The other investment surge was in small-scale project installations in Europe, predominantly rooftop solar. 

Investment in European large scale renewables declined 22% to $35.2 billion.

"Europe’s small-scale solar energy boom owed much to feed-in tariffs, particularly in Germany, combined with a sharp fall in the cost of photovoltaic (PV) modules," says Michael Liebreich, CEO of Bloomberg New Energy Finance, which produced the report for the UN.

Investments in Germany’s small distributed capacity rose 132% to $34 billion; in Italy they rose 59% to $5.5 billion;  France was up 150% to $2.7 billion; and the Czech Republic rose 163% to $2.3 billion.

The price of PV modules per megawatt has fallen 60% since mid-2008, making solar far more competitive in a number of sunny countries.

By the end of 2010, many countries were rushing to make their PV tariffs less generous. Indeed, Spain and the Czech Republic both moved to make retroactive cuts in feed-in tariff levels for already-operating projects, "damaged investor confidence," the report says. "Other governments, such as those of Germany and Italy, announced reductions in tariffs for new projects – logical steps to reflect sharp falls in technology costs."

Nevertheless the authors expect the small-scale solar market to remain strong in 2011.

Further drops in costs for solar, wind and other technologies lie ahead, the report says, posing a growing threat to the dominance of fossil-fuel sources in the next few years.

What About Wind and other Renewables?

Throughout the last decade, wind was the most mature renewable energy technology and enjoyed an apparently unassailable lead over its rival power sources.

Wind turbine prices have fallen 18% per megawatt in the last two years, reflecting, as with solar, fierce competition in the supply chain.

In 2010, wind continued to dominate in terms of new financial investment in large scale renewables, with $94.7 billion (up 30% from 2009). However, when investments in small scale projects are added in, solar is catching up, with $86 billion in 2010, up 52% on the previous year.

Biomass and waste-to-energy come in third with $11 billion invested. And biofuels, which boomed at $20.4 billion in 2006, fell off dramatically – to $5.5 billion last year.

The sharpest percentage jumps in overall investments were in small-scale projects – up 91% year-over-year at $60 billion, and in government-funded research and development, up 121% at $5.3 billion, as "green stimulus" funds continued to be dispersed.

Two areas of investment fell in 2010 compared to 2009:

1. Corporations pulled back on research, development and deployment because of hard economic conditions – down 12% to $3.3 billion

2. Expansion capital for renewable energy companies from private equity funds declined 1% to $3.1 billion.

On the pubic markets, share prices in clean energy index funds fell in 2010, with the WilderHill New Energy Global Innovation Index (NEX) down 14.6%, underperforming wider stock market indices by over 20%.

The poor performance was at least partially due to investor concerns about industry over-capacity, cutbacks in subsidy programs and competition from utilities burning cheap natural gas.

Acquisitions were also down, falling from $66 billion in 2009 to $58 billion in 2010. The two largest categories of M&A – corporate takeovers and acquisitions of wind farms and other assets – both fell by around 10%.

The low price of natural gas – which was between $3-$5 per million BTU for almost all of 2010 – hurt the growth of renewables, the report says. The price of natural gas was far less than it was during the mid-2000s, before it peaked at $13 in 2008.

"This gave generators in the US, but also in Europe and elsewhere, an incentive to build more gas-fired power stations and depressed the terms of power purchasing agreements available to renewable energy projects," says the report.

The report launch marks the beginning of the new UNEP Collaborating Centre for Climate & Sustainable Energy Finance at the Frankfurt School of Finance & Management. Its goal is to develop cost-effective ways to reduce energy-related carbon emissions by mobilizing sustainable energy investments and strengthening their associated markets.

The Centre’s approach combines project implementation on the ground with research, think tank activities, training and education.

For more on  clean energy investing, read the Progressive Investor newsletter.

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