Investors Pour Unprecedented Billions Into Renewable Energy

PARIS, France, June 21, 2007 (ENS) - Investment capital flowing into renewable energies such as wind power climbed from $80 billion in 2005 to a record $100 billion in 2006, according to a new report from the UN Environment Programme, UNEP. The trend analysis cites climate change concerns, increasing government support, and high oil prices as reasons for the boom.

The trend continues in 2007 with experts predicting investments of $85 billion this year. "The renewable energy sector’s growth "although still volatile ... is showing no sign of abating," the report states.

Traders on the floor of the New York Stock Exchange. ( Photo courtesy Visiting DC)
While the report finds that high oil prices have driven investors into the renewable energy market, UNEP Executive Director Achim Steiner says many investors are choosing renewables regardless of oil prices.

"One of the new and fundamental messages of this report is that renewable energies are no longer subject to the vagaries of rising and falling oil prices - they are becoming generating systems of choice for increasing numbers of power companies, communities and countries irrespective of the costs of fossil fuels, said UNEP Executive Director Achim Steiner, introducing the report Wednesday.

While renewables today are only two percent of the installed power mix, they now account for about 18 percent of world investment in power generation, with wind generation at the investment forefront.

Solar and biofuel energy technologies grew even more quickly than wind, but from a smaller base.

Investors put $71 billion into companies and new sector opportunities in 2006, a 43 percent jump from 2005 - and up 158 percent over the last two years.

In addition, about $30 billion entered the sector in 2006 via mergers and acquisitions, leveraged buyouts and asset refinancing. This buy-out activity, rewarding the sector’s pioneers, implies deeper, more liquid markets and is helping the sector shed its niche image, finds the report.

The report covers both industrialized countries that are members of the Organization for Economic Cooperation and Development, OECD, and developing countries.

"This is no longer an industry solely dominated by developed country industries," Steiner said. "Close to 10 percent of investments are in China with around a fifth in total in the developing world."

This geothermal heat pump heats and cools the Beijing Concordia International Apartment Building
(Photo by Jean Ku courtesy NREL

To limit global warming, humans have to pump less carbon dioxide and other greenhouse gases into the atmosphere and find ways to generate electricity without burning coal, oil and gas, which all emit greenhouse gases.

This transition has come to be called "decarbonizing" the economy, and Steiner says the report shows the process is "getting underway."

Yvo de Boer, executive secretary of the UN Convention on Climate Change, agrees. "The report clearly shows that, amid much discussion about the technologies of tomorrow, the finance sector believes the existing technologies of today can and will decarbonize the energy mix provided the right policies and incentives are in place at the international level."

The report represents "a strategic tool for understanding the energy sector’s development in both OECD and developing countries," says Michael Liebreich, CEO of the New Energy Finance Ltd, which prepared the report for UNEP’s Sustainable Energy Finance Initiative based in Paris.

New Energy Finance is a specialist provider of information and research to investors in renewable energy, low-carbon technology and the carbon markets, and co-publishes the NEX, the WilderHill New Energy Global Innovation Index (ticker: NEX).

Thin film solar photovoltaic panels at dawn in New Delhi (Photo by Peter McNutt courtesy NREL )
The report shows the NEX index rose 31 percent during 2006, which was well ahead of the stock market as a whole. "The biofuels sector was the star performer."

The report attributes the sector’s boom to a range of global concerns – climate change, increasing energy demand and energy security foremost among them.

It credits as well the November 2006 U.S. mid-term elections, which confirmed renewable energy as "a mainstream issue," moving it up the political agenda.

Also spurring the sector’s growth has been the persistently high price of oil – averaging more than $60 a barrel in 2006.

"Growing consumer awareness of renewable energy and energy efficiency – and their longer term potential for cheaper energy, and not just greener energy – has become another fundamental driver," it says.

"Most importantly, governments and politicians are introducing legislation and support mechanisms to enable the sector’s development."

Dr. Mohamed El-Ashry knows a thing or two about investment. Currently chairman of the Renewable Energy Global Policy Network REN21, a forum for international leadership on renewable energy, he served as chairman of the Global Environment Facility, GEF between 1991 and 2002.

Under his leadership, the GEF grew from a pilot program with less than 30 members to the largest single source of funding for the global environment with 173 member countries and billions in assets.

"The findings in this report are adding to the mounting evidence that renewable energy is going to play a far greater role in the energy mix than many expected," El-Ashry said.

Geographically, renewable energy investment is almost evenly split between United States and Europe.

Wind turbine rotor parts at Clipper Windpower's new wind turbine manufacturing facility in Cedar Rapids, Iowa (Photo courtesy Clipper Windpower.)

U.S. companies receive more technology and private investment - with high profile investment interest shown in biofuels during 2006 by entrepreneurs such as Vinod Khosla, Bill Gates and Richard Branson.

Europe’s publicly quoted companies attracted the most public stock market investment dollars - $5.7 billion compared to $3.5 billion in the U.S.

The renewable energy sectors attracting the highest investment levels are wind, solar and biofuels, "reflecting technology maturity, policy incentives and investor appetite," according to the report.

Asset financing of new generation capacity, the largest single source of renewable energy investment, accounted for nearly 40 percent of the $70.9 billion invested in 2006, a reflection of the sector’s coming of age, the report says. The trend continues in 2007.

Most asset financing deals were in the relatively mature wind sector, with biofuels in second place.

Renewables now compete head-on with coal and gas in terms of new installed generating capacity, says the report, adding that "the portion of world energy produced from renewable sources is sure to rise substantially as the tens of billions of new investment dollars bear fruit."

Copyright Environment News Service (ENS) 2007. All rights reserved.