NEW ENERGY AND THE COMMUNITY OF NATIONS

Who’s Winning the Clean Energy Race? Growth, Competition and Opportunity in the World’s Largest Economies
March 2010 (Pew Charitable Trusts)
and
Who’s Winning the Clean Energy Race?
March 24, 2010 (Pew Charitable Trusts)

THE POINT
Here’s a statistic that will warm the cockles of the hearts of all those who wish the U.S. ill: Of the top 20 economies in the world, the U.S. ranks 10th in percent of GDP invested in New Energy and Energy Efficiency.

If, as some say, there is an “arms race” for dominance in the coming international New Energy economy, the U.S. is moving toward submission. If, as others say, there is a 21st century “space race” going on, the U.S. soon may not be able to overcome the force of gravity.

It makes headlines and captures attention to portray the emergence of the international New Energy economy as an arms race or a space race. In actuality, the international community of nations is attempting a Normandy invasion against dependence on the Old Energy economy of yesterday in order to win the struggle against the global climate change Old Energy has created.

And, as Who’s Winning the Clean Energy Race? Growth, Competition and Opportunity in the World’s Largest Economies from the Pew Charitable Trusts makes clear, the U.S. is rapidly losing its leadership role in the assault. If, therefore, the community of nations succeeds in the assault and wins the war, the U.S. may end up in the same dependent position in the climate change-defeating "post-war" economy that “old Europe” was in after the invasion of Normandy.

In the relative terms of investment intensity (the percent of GDP invested in New Energy, NE, and Energy Efficiency, EE), Spain invested five times what the U.S. did in 2009. China, Brazil and the UK invested three times more.

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The Pew report gathers salient and incisive numbers on NE & EE in the G20 nations which, as the world’s top 20 economies, account for 90% of world finance and investment. It offers some aggregate numbers that demonstrate to anybody who has had their head in a barrel of oil for the last 5 years and hasn’t gotten the word about the emerging New Energy economy:

(1) Investment in NE & EE (in 3 comprehensive categories: (1) asset financing, (2) public market financing, and (3) venture capital/private equity financing) grew 230% worldwide from 2005 to 2010.

(2) While the world struggled through the worst financial fall since the 1930s in 2008-09, investment in NE & EE in the G20 fell only 6.6%

(3) Rebounding from the crash in late 2008/early 2009, NE & EE saw a worldwide 2009 investment of $162 billion, the G20 nations accounting for $117 billion of it.

(4) The G20 economies had an average investment of $32 billion per quarter in each of the last three quarters of 2009. And the enormous investments made in NE & EE by many of the G20 governments to counteract the economic downturn haven’t yet really begun getting a response from innovators, businesses and installers. G20 investment in the NE & EE sector is expected to grow 25% to $200 billion in 2010 and at least as much again in 2011.

The Pew study shows clearly that national policy decisions that set goals and create incentives have unequivocal impacts on the growth of G20 nations’ New Energy economies. Nations like China, Brazil, the UK, Germany and Spain have aggressive policies and growing NE & EE capabilities. The U.S., which has no compelling national goals and inconsistent financial incentives, is falling toward also-ran status.

As commentators continue to point out, the vaunted U.S. leadership in innovation and entrepreneurship is at risk. Its own venture capital, long the force that has given the U.S. superpower status in the world economy, is migrating to offshore NE & EE opportunities.

The courageous people of Western Europe stood up to fascism in World War II but their economies were crushed and they shivered in darkness for several winters afterward while the U.S. helped them recover. If the U.S. does not get with the effort the world is making to defeat its current climate change threat, Washington may be asking the leaders of the New Energy invasion for help in winters to come.

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THE DETAILS
The world invested $162 billion in New Energy (NE) and Energy Efficiency (EE) in 2009. While that was a drop from 2008 of 6.6%, world investment in the oil and gas industry fell of 19%, a clear statement of where the energy sector perceives emerging value to be.

At the end of 2009, the world’s installed renewable energy capacity was 250 gigawatts (GW), 6% of global generating capacity and enough electricity to power ~75 million homes. Investment was $162 billion, with $117 billion of that coming from G20 nations.

The G20 nations’ governments collectively committed $184+ billion in stimulus spending to NE & EE in 2009 but only ~16% has so far been put to work. The bulk of the money is expected to keep driving growth for innovators, businesses and installers in 2010 and 2011.

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The U.S. was replaced by China as the overall leader in NE &EE finance and investment in 2009. From 2005 to 2008, China built its NE & EE manufacturing base through the development of foreign markets. In 2009, it began growing its domestic demand with ambitious new installed capacity commitments.

U.S. NE & EE investment in 2009 fell for the first time since 2005. It was 40% below the 2008 number. Only long term extensions of the federal production tax credit (PTC) and investment tax credit (ITC) and emergency measures included in the American Recovery and Reinvestment Act (ARRA) kept 2009 investment up as high as it was.

Domestic policy decisions drive growth. Capital is invested where long term policy promises long term federal support. National Renewable Energy Standards (RESs), feed-in tariffs (FiTs) and other long-term financial incentives and national commitments to cut greenhouse gas emissions (GhGs) in G-20 nations (especially China, Brazil, Germany and Spain) are the foundation for their significant NE & EE growth and the U.S. lack of all such policies (except inconsistently allotted financial incentives) explains its falling position.

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The U.S. had a 0.13% investment intensity (the percent of GDP invested in NE & EE) in 2009. Spain’s investment intensity was 5 times greater (0.74%) and the UK (0.51%), China (0.39%) and Brazil (0.37%) were around 3 times greater.

Only the U.S. gift of abundant natural resources and its powerful entrepreneurial tradition kept it among G20 leaders. Only aggressive new policies are likely to keep it there going forward.

World wind power, because of its widely recognized technological maturity and cost-competitiveness, won 50+% of the world’s 2009 sector investment and ~50% of the world’s new installed NE generating capacity.

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U.S., Spanish and EU investments in various solar technologies won solar power the second most investor attention, with a growing but still significantly smaller share in world NE investment in 2009. Solar costs are dropping quickly toward grid parity and its share of total financing, across the full spectrum of its technologies (silicon PV, thin film PV and solar power plants) is expected to continue growing.

Biofuel investment, a leader during the period of enthusiasm for its promise in 2006 to 2007, dropped off in 2008 and 2009 as governments and private investors discovered flaws in the way biofuel crops drive up food commodity prices, increase rain forest destruction and fail to reduce GhGs.

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Pew classified investments and financing that sustain and grow NE & EE technology R&D, manufacturing scale-up and project rollout in 3 categories: (1) asset financing, (2) public market financing, and (3) venture capital/private equity financing.

Asset financing
Asset financing is the dominant type of NE & EE finance. It is usually used to grow manufacturing and install capacity. Due to the credit crunch, 2009 asset financing fell 6% from 2008 to $94.9 billion but remained 80+% of NE & EE investment. Largely directed at physical infrastructure (power, heat and fuels that generate electricity), the largest part of the financing went to onshore wind. China got the most asset financing in 2009 and the U.S. got the second most.

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Public market financing
This category is essentially market investments, much of it from initial public offerings (IPOs). The willingness of investors to provide capital through IPOs began falling after a 2007 high of $23 billion. By last year, IPOs were down 45% to $12.1 billion. Most companies in G20 nations were not even going to a market that was by last year less than 11% of G20 NE & EE investment. At the end of last year, however, there was some return of IPO activity in China. It is an indicator that bears watching.

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Venture capital (VC)/private equity (PE) financing
With the financial crash, venture capitalists backed away from the risky business of financing innovation. VC/PE activity was down 43% in 2009 to $6.4 billion. What activity remained was largely in the U.S. (more than 60%), in next-gen biofuels, cutting edge solar, EE and smart grid technologies.

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Germany has the most installed solar energy capacity in the world. The U.S. has the most total installed wind, biomass and geothermal capacities but China had the most NEW installed wind capacity in 2009 and is threatening the U.S. in overall world NE leadership. New, aggressive policies and emissions reduction commitments and programs in Spain, Brazil and India have also moved them into competitive NE & EE positions among the G20 nations.

World stimulus plans allotted a total of $184 billion for NE & EE spending (including $67 billion by the U.S. and $47 billion by China) but only 9% ($16.6 billion) of it had been put to work by the end of 2009 (with the U.S. and South Korea leading). Two-thirds of the stimulus investment is expected to be put to work in 2010 and 2011.

Because credit remained available in Asia despite the global financial crisis, Asian investment in NE & EE increased 37% in 2009 to $39.02 billion. It was led by China’s enormous spending for wind power. At the same time, due to the economic downturn, investment in NE & EE dropped 33% in the Americas and 16% in Europe.

NE & EE 2010 investment is predicted to grow 25% to $200 billion. If the patterns of where the investment takes place continue, the U.S. is on its way to also-ran status.

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QUOTES
- From the Pew Charitable Trusts: “Policy, investment and business experts alike have noted that the clean energy economy is emerging as one of the great global economic and environmental opportunities of the 21st century. Local, state and national leaders in the United States and around the world increasingly recognize that safe, reliable, clean energy—solar, wind, bioenergy and energy efficiency—can be harnessed to create jobs and businesses, reduce dependence on foreign energy sources, enhance national security and reduce global warming pollution…”

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- From the Pew study: “…Nations seeking to compete effectively for clean energy jobs and manufacturing would do well to evaluate the array of policy mechanisms that can be employed to stimulate clean energy investment. This is especially true for policymakers in the United States, which is at risk of falling further behind its G-20 competitors in the coming years unless it adopts a strong national policy framework to spur more robust clean energy investment…”