Policy Uncertainty, Pricing Turmoil Weigh Down Q3 Clean Energy Investments

2012 is likely to be the first down year for clean energy investments worldwide in the past eight years, falling short of the record $280 billion in 2011.

In the third quarter, global investments in clean energy slipped to $56.6 billion, weighed down by policy uncertainty in key markets, such as the US, UK and Italy, and the dampening effect of over-capacity and low solar and wind prices on public and private investment.  

And those lower prices mean the same megawatt capacity can now be purchased for significantly fewer dollars. That’s a good thing for the industry in the long run, but for now it makes it harder on individual companies and results in lower investment results.

Investments dropped 20% compared to Q3 2011 and 5% from Q2 2012, largely due to weaker environments in the US and India, and a lull in financing for wind projects, reports Bloomberg New Energy Finance.

Solar still leads among clean energy sectors with $33.8 billion in investment, more than double that for wind ($15.5 billion), followed by small hydro ($3.5 billion), biomass and waste ($2 billion), energy-smart technologies ($800 million) and biofuels ($700 million).

"The fact that 2012 looks like a down-year is disappointing, but not surprising, and the decline shouldn’t be exaggerated. The third quarter figure was still well over $50 billion – roughly equivalent to investment in the whole of 2004," says Michael Liebreich, CEO of Bloomberg New Energy.

These numbers tell only part of the story, however. In the first half of 2012, non-hydro renewable energy supplied 5.76% of US electricity, the highest ever. And along with natural gas, it dominated additions to the US grid. And small solar makes up 40% of the pipeline of new US projects.

Emerging Markets Pick Up The Slack

Asset finance for utility-scale projects such as wind farms, solar parks and biofuel plants fell 10% to $32.3 billion, compared with a record $49.5 billion in Q3 2011. 

Last year, developing countries surpassing developed economies for the first time in utility-scale projects. 

“The location of some of biggest projects financed in Q3 this year highlight the geographical shift that is taking place in clean energy, with established markets such as the US, Europe and China losing momentum while newer markets in South America, Asia and Africa pick up steam,” says Michael Liebreich, CEO of BNEF. 

While investments in the US dropped 62% over the past year to $7.3 billion, and slipped the same percentage in India to $1.5 billion, they rose 24% in Brazil to $1.9 billion. 

The three biggest projects between July and September are: 

  • Phase 1 of the 160 MW Masen Ouarzazate solar thermal plant in Morocco – $1.2 billion
  • Also in Morocco, the 300 MW Nareva and International Power Tarfaya wind farm – $563 million
  • In Brazil, the 258 MW Verace wind portfolio – $497 million

But Vestas says the higher sales in emerging markets aren’t enough to make up for the decline in the US and Europe.

This has been a big year for small-scale projects such as rooftop solar, with $21.3 billion was invested in Q3. That’s 11% higher than Q3 2011 and about the same as Q2 2012. Activity has been particularly strong in Germany, China, the US, Japan and the UK. 

Although investments in public clean energy companies continues to be sluggish at about $1.8 billion, that’s 47% higher than Q2 and 28% higher than Q3 2011. Clean energy stocks peaked on the public markets in late 2007 before the global stock market plunge in 2008, and have yet to recover. 

The biggest deals this quarter were secondary issues, not IPOs – solar cell maker Shanghai Aerospace Automobile Electromechanical Company raised $302.8 million and US electric vehicle maker Tesla Motors pulled in $225 million. 

Venture capital and private equity investors put just $1.3 billion into clean energy, off 20% from Q2 and 34% from Q3 2011. The few large deals include $200 million for US solar installer, SolarCity, which just filed for its IPO; and $104 million for US biofuel developer Elevance Renewable Sciences

Spotlight on Solar

While solar is attracting more money than other clean energy sectors, pricing turmoil is taking its toll on venture capital investments.

Just $72 million of venture capital flowed into solar companies during the third quarter – the lowest levels since 2008, according to Mercom Capital Group.

There were 14 deals in Q3, down from 32 deals in the second quarter, when funding reached $376 million.

The biggest single investment in the third quarter was $15 million, which went to concentrating PV company SolFocus.

"This was the first sub-$100 million quarter for solar VC funding since 2008. It is a very challenging market, particularly for upstream companies – good exits have become rare and M&A deals are more and more resembling distress sales," says Raj Prabhu, managing partner at Mercom Capital Group. 

So far this year, $705 million has gone into solar VC rounds.

In contrast, investors added more than $1 billion to solar leasing funds in Q3, bringing the total year-to-date to almost $2 billion.

Companies that benefited the most from this are SolarCity, SunRun, SunPower, Sungevity, OneRoof Energy, Clean Power Finance, and Enfinity.

Active investors in these funds include Credit Suisse, Rabobank, Wells Fargo, Citi, and US Bancorp.

Also in Q3, there were 12 corporate M&A transactions, worth $393 million. Two of these deals, Q-Cells and MiaSolé, involved distressed sales.

The most notable transaction of the third quarter was the $2 billion acquisition of Vivint by Blackstone Group, which aspires to become the US leader in solar leasing.

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