NEW ENERGY $$$ BEAT FOSSIL $$$

Clean Energy Funding Trumps Fossil Fuels
James Kanter, June 3, 2009 (NY Times)
and
Global Trends in Sustainable Energy Investment 2009
June 2009 (United Nations Environment Programme, Sustainable Energy Finance Initiative and New Energy Finance)

SUMMARY
Global Trends in Sustainable Energy Investment 2009, from the United Nations Environment Programme (UNEP), the Sustainable Energy Finance Initiative (SEFI) and New Energy Finance, shows definitively that investment in New Energy in 2008 for the first time totaled more than investment in fossil fuel energy.

2008 New Energy investment grew 13% to $117 billion. New, private investment in New Energy increased 37% over 2007 to $13.5 billion.

Despite the fact that the economic downturn caused world electricity demand growth to fall from 2.9% to 2.4%, New Energy’s share went from 3.9% to 4.4%

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New Energy represented 41% of all new power generation in the world in 2008. Wind ($51.8 billion) and solar ($33.5 billion) were the leaders in growth. Investment went into the biggest markets in the North America and the EU but also, increasingly, into emerging New Energy markets in China, Eastern Europe and Latin America.

The transaction value in the world’s emissions trading markets increased 87% in 2008 to $120 billion. The imminent instituting of mandatory U.S. and Australian cap&trade systems will inevitably expand that growth exponentially.

Although New Energy companies have reported hints of returning investment in the second quarter of 2009, this year’s numbers are - due to the worldwide economic downturn - far off of last year’s. The report estimates stimulus packages in North America, the EU and Asia will inject $180 billion into New Energy development going forward. In addition, China’s $680 billion stimulus program will direct significant funds to New Energy. These are indications of unprecedentedly strong policy commitment and a substantial basis for assuming New Energy expansion will return.

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With climate change worsening, an ever-greater need for domestic and secure sources of energy, persistent and troubling questions about the dependability of fossil fuel supplies and more sophisticated and affordable new technologies ever more available, there is every reason to believe the drivers of New Energy growth will bring capital back to the sector as the economies of the world turn upward.

In the last 4 years, investment grew from $35 billion to $155 billion. For emissions to peak by 2020 and begin diminishing, which they must if the worst impacts of global climate change are to be avoided, yearly investment in New Energy, Energy Efficiency and – according to the report – carbon capture and storage (CCS) must reach $500 billion in 2020 and $590 billion in 2030.

That is 0.44% of international GDP from 2006 to 2030. The results would pay for themselves but to get there it will take a sustained and significantly scaled-up commitment to a New Energy economy.

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COMMENTARY
Key Findings:
(1) The economic downturn held 2008 investment in New Energy to a 5% increase over 2007 going from $148 billion to $155 billion. The second half of 2008 was 17% below the first half, and 23% below the second half of 2007.
(2) New Energy did better in the downturn than most other sectors for most of the year. From September 2008 on, there was real investor flight from risk. Share prices fell more than the overall stock market (61%) and have only made up a small part of the loss. The return of investors is contingent on their realization that New Energy is one of the best bets they can make.

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(3) $180 in stimulus funds for New Energy from U.S., EU and Asian governments will be crucial to boosting the sector but more policy clarity and consistency is needed. Financing remains restrained in all sectors. When money is available, New Energy projects are likely to be among the first choices.
(4) Incubating companies fell in 2008 to 338, down just less than 2% below 2007. 21% (73) were solar companies. Wind, biofuels and Energy Efficiency companies were also incubated last year.
(5) Venture capital and private equity funds invested $19.3 billion in New Energy and Energy Efficiency in 2008, up 43% over 2007. $13.5 billion was “new” money, 37% more than 2007’s $9.8 billion in “new” money. It covered the full spectrum of New Energies, from tidal energy to CCS.
(6) World stock market investment in New Energy fell 51%, from $23.4 billion in 2007 to $11.4 billion in 2008 as a result of dramatic slowing in the second half of the year. 48 companies completed IPOs in 2007, raising $13.6 billion. There were 18 companies floated in 2008 and they raised $3.6 billion. There have been essentially no initial public offerings in 2009.

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(7) Financing for New Energy assets grew 12.9% in 2008 to $116.9 billion. Most was in new power generation projects. Terms of debt finance deals for New Energy projects in Europe have become tougher since October 2008. The $787 billion U.S. stimulus package offers better options and is expected to drive investment growth in the second half of 2009 and in 2010. New wind projects were up from 2007’s $41.3 billion to $47.9 billion in 2008 but collapsed in the first quarter of 2009. New solar project investment leapt from 2007’s $12.1 billion to $22.1 billion in 2008 but, like wind, dropped hard in early 2009.
(8) Without available financing, merger and acquisition (M&A) money fell 16.2% to $21.7 billion in 2008. The biggest part, $9.4 billion (43.3%), went to equipment manufacturers. Developers saw the biggest year-on-year increase, $7.3 billion (up 156%). The economic downturn-driven wind industry consolidation is expected to drive more M&A, especially in Europe.
(9) In 2007, a New Energy index fund was launched, on average, once a week. In 2008, a fund was launched once a month, though some were large and well financed. With the market down 40% and investors, sensing a bottom, slowly coming back into the markets, a number of new funds, most prominently private- and project-equity funds, have been announced in 2009.

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(10) Emissions trading markets saw another year of record growth in 2008. Transaction value worldwide grew 87% to $120 billion. Liquidity is best in the the European Union (EU) Emissions Trading Scheme (ETS) in the Kyoto compliance market. The EU ETS covers 45% of Europe’s greenhouse gas emissions and accounts for 79% of all emissions transaction value. The turmoil in world financial markets impacted emissions trading markets, creating downward price fluctuations. The European Union Emissions Allowances (EUAs) ended the year at ~$25 per tonne, dropped precipitously in 2009 and have risen steadily as markets have stabilized and investors have begun returning.
(11) 2008 investment in developing countries was up 27% to $36.6 billion. That was 31% of total world investment, up from 2007’s 26%. 2008 investment in developed countries fell by 1.7% to $82.3 billion. China’s $15.6 billion of new investment, mostly in new wind (and some biomass), led Asia. Investment in India was $3.7 billion in 2008, up 12%. Asset finance in India was up 36% to $3.2 billion. Most of the 2008 New Energy investment in Latin America went to Brazil ($10.8 billion, up 7% from 2007).

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QUOTES
- From the report: “…the drivers that have propelled investment in the sustainable energy sector so dramatically for the past five years are still at work – climate change, energy insecurity, fossil fuel depletion, new technologies etc. There is also a strong core of demand for clean energy based on firm mandates: feed-in tariffs, renewable portfolio standards, renewable fuel standards, building codes, and efficiency regulations. In many markets clean energy also provides strong economic returns, particularly green jobs, even in a period of lower energy prices.”

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- From the report: “All eyes – including those of politicians, industry players and the media – are on the Copenhagen UNFCCC Conference of the Parties (COP) in December 2009,which will seek to reach agreement on a successor to the Kyoto Protocol. As the current financial crisis recedes, there is still a need for appropriate policies to support the shift to a cleaner, low-carbon energy mix. The industry is seeking a well-designed set of support mechanisms, tailored to each geography and to the technological maturity of each sector. Sectors nearing maturity and competitiveness with fossil fuels need revenue support as they close the gap; technologies that work in the lab but are too risky to scale up need commercialisation support; sectors with longer-term technological promise need research funding. It is encouraging that some of these elements are included in the current stimulus packages.”
- Achim Steiner, Under-Secretary General and Environment Programme Executive Director, United Nations (UN): “This year’s Global Trends survey was never likely to show the kind of extraordinary growth in renewables that has underlined previous years. Nevertheless, investment in the sustainable energy market has in some ways defied the global recession growing by around five per cent—from $148 billion in 2007 to around $155 billion in 2008.”

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- Achim Steiner, Under-Secretary General and Environment Programme Executive Director, United Nations (UN): “Perhaps the biggest stimulus package of them all will happen in Copenhagen if governments agree a scientifically-credible and forward-looking new climate agreement. This will give certainty and continuity to the carbon markets and a clear signal that renewable energy will become an increasingly important slice of the overall ‘fuel’ mix and a major contributor to the sustainable development agenda, including achieving the poverty-related UN Millennium Development Goals.”