THE STATE OF NEW ENERGY INVESTING

…New Power Capacity from Renewable Sources Tops Fossil Fuels Again in US, Europe; Global investments in renewables also top non-renewables for 2nd year…
15 July 2010 (United Nations Environment Program)

THE POINT
Investment in New Energy and Energy Efficiency in 2009, at $162 billion, was 7% below the previous year. Considering the extent of the worldwide recession, that is a remarkably small decrease. Investment in biofuels and solar power plants was off more significantly. Investment in wind energy, however, set new records.

There is little doubt about the most striking 2009 New Energy (NE) and Energy Efficiency (EE) statistic: Investment in China grew 53%. The world invested $119 billion in NE/EE in 2009 and China got $33.7 billion of it.

For the first time, investment in Asia/Oceania’s NE/EE ($40.8 billion) was greater than that in the Americas. Investment in Europe’s NE/EE was down 10% ($43.7 billion).

On the strength of total investment in China greater than investment in the U.S., China’s installed NE capacity increased 37 gigawatts (GW) in 2009.

There are, though, more important numbers in Global Trends in Sustainable Energy Investment 2010; Analysis of Trends and Issues in the Financing of Renewable Energy and Energy Efficiency, from the United Nations Environment Program’s Sustainable Energy Finance Initiative and Bloomberg New Energy Finance.

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The more important numbers are found in the amount of recovery money that was dedicated internationally to NE/EE investment ($188 billion) versus how much has been spent (9%). That leaves 91% of $188 billion to be invested in 2010 and 2011. With $170+ billion in stimulus funding ready to go to work in NE and EE over the next 18 months, there is likely to be a lot of action.

Total NE/EE investment (excluding large hydro) in 2009 (~$100 billion) was about the same as investment in fossil-fuel generation. Adding investment in large hydro ($39 billion) makes total investment in NE more than fossil-fuel generation investment for the second year in a row.

Most notable singular areas of 2009 investment: (1) China wind development, (2) North Sea offshore wind investment, and (3) financing for electricity storage and electric vehicle technology.

Energy-smart technologies (power storage, EE hardware and software, etc.) accounted for $2.3 billion in public markets investment and $2.1 billion in VC and PE investment in 2009. It was the first time the efficiency technologies got more VC/PE investment than NE.

New Energy and Energy Efficiency sector share prices were up ~40% over 2008, when they fell ~33%. In Q1 2010, they under-performed the stock markets as a whole by ~10% but were up 50+% over Q1 2009.

The recovery has hesitated in 2010’s Q2, with markets volatile in response to international economic turmoil and government economic policies compromised by political pressure to cut deficit spending. But the impact of the remaining 91% of that $188 billion NE/EE stimulus money should be interesting to see.

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(See below for Renewables 2010 Global Status Report, the companion report from the Renewable Energy Policy Network for the 21st Century (REN21), reviewed yesterday.)

THE DETAILS
The 2009 7% drop in NE/EE investment, to $162 billion, was down from 2008’s $173 billion. It was largely due to the international recession and the unavailability of credit.

Yet if solar water heater spending and total installation costs for rooftop solar PV were factored in, total 2009 NE/EE investment would show an increase over 2008.

2009 areas of investment strength: (a) Wind development in China, (b) offshore wind development in the North Sea, and (c) financing of power storage and electric vehicle
technology.

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2009 areas of investment weakness: (a) U.S. project development, and (b) biofuel plant financing.
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Public-sector banks (the European Investment Bank, Germany’s KfW, etc.) expanded their role in 2009.

Development assistance to developing economies from large institutions (the World Bank Group, Germany’s KfW, the Inter-American Development Bank, the Asian Development Bank) went to $5+ billion in 2009, from 2008’s $2 billion. Other development agencies added loans, grants, and technical assistance.

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Total 2009 venture capital (VC) investment was $2.7 billion, 36% below the 2008 VC investment.

Total (government and private) 2009 research, development and deployment (RD&D) investment was $24.6 billion. The government share was up 49% ($9.7 billion) but the corporate share ($14.9 billion) was 16% below the 2008 level.

Private equity (PE) expansion capital ($4.1 billion) was down in 2009. Public investment ($14.1 billion) was a little higher than the 2008 investment but significantly less than half the $24.6 billion invested in 2007. A Chinese wind project developer got $2.6 billion in a December IPO, but IPOs remain dicey in 2010.

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The recession is obviously responsible for the fall-offs in VC, PE and all other private sector investment. It made capital and credit less available and unproven and competitive industries and technologies less engaging to investors.

Asset financing ($100.9 billion) of utility-scale NE projects in 2009 was just under the 2008 asset financing ($108.4 billion). The biggest winners were Chinese wind, North Sea offshore wind and small-scale projects (solar water heaters, $18.1 billion).

The ~$188 billion in worldwide NE/EE stimulus funding came from a wide variety programs. The U.S. devised a grant-in-lieu program to compliment tax credit extensions. Finland, Ontario, New South Wales, Ukraine, Serbia, the UK and other states, provinces and nations followed Germany and Spain with feed-in tariffs (FiTs) for small-scale, distributed generation.

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Of 2009’s $162 billion in NE/EE new investment ($11 billion less than 2008’s $173 billion), $61 billion was money changing hands and not new money in the sector (project acquisitions, buy-outs, refinancings, corporate M&A).

$28 billion went into new technology development: (a) $3 billion in VC financing, (b) $15 billion in corporate spending, and (c) $10 billion from governments. $4 billion was PE fund investment for expansion capital. $14 billion was stock market investors. $2 billion was reinvested capital.

Asset financing of NE generation of utility-scale projects was $101 billion and financing of smaller, distributed generation projects was $18 billion.

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The 2009 investment built ~50GW of NE generation capacity (excluding hydro), a huge leap up from the 2008 total of 40GW and approaching the same scale as 2009’s 83GW of fossil-fuel generation capacity. Adding in the 28GW of large hydro puts NE at only 5 GW below the conventional fossil-fuel capacity. If this trend continues, NE capacity should, for the first time, pass Old Energy late this year or early in 2011.

Biofuels were undesireable to stock market investors. Wind and solar found more support, including a $1.1 billion rights issue by Vestas Wind Systems and Chinese wind developer Longyuan Power’s $2.6 billion IPO.

There was strong interest in power storage, including A123 Systems’ $371 million IPO and EV and battery maker BYD’s 427% share gain.

The big showing in 2009 for power storage and EE ($2.3 billion from public markets and $2.1 billion from VCs and PEs) is likely attributable to the combined facts of limited available capital and the lesser capital needs for EE development.

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2010
In January through April 2010, NE/EE share prices under-performed stock markets as a whole by ~10%.

International economic turmoil (especially in EU countries like Greece, Portugal and Spain) has impeded the return of private capital in 2010 and pressure from political conservatives to deal with deficit spending has limited the amount of government support in 2010.

NE/EE new investment for the first half (1H) of 2010 was $65 billion, 22% higher than in 1H 2009. Q1 was $33 billion and Q2 was $32 billion, similar numbes to those of 2009's last 3 quarters.

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China continues to lead investment in 2010. U.S. asset finance increased to $8.4 billion in H1, well above 1H 2009’s $5.9 billion. Europe fell off significantly.

VC/PE investment increased 65% ($5.2 billion, including a $350 million Series B round for Better Place, a U.S. EV company, and a $219 million expansion capital round for Energimp, a Brazil wind developer). Public market investment for 1H 2010 was $4.7 billion, ahead of 1H 2009’s $3.5 billion.

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QUOTES
- Michael Liebreich, CEO, Bloomberg New Energy Finance: “The relatively resilient performance of the sector during the current economic downturn shows that clean energy was not a bubble created by the late stages of the credit boom, but is instead an investment theme that will remain important for the years ahead.”

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- From the report: “Clean energy survived the first phase of the world economic downturn, in late 2008 and the whole of 2009, better than many had expected. After a slowing in investment activity in the final months of 2008 in the face of the banking crisis, and then a weak first quarter of 2009, sustainable energy enjoyed a rebound in investment during the final three quarters of last year…The end-result was that total new investment in sustainable energy worldwide reached $162 billion in 2009, down from a revised $173 billion for 2008 but still the second highest annual figure ever and nearly four times 2004’s total…This resilient performance showed that clean energy was not a bubble created by the late stages of the credit boom, but is an investment theme that will remain important for the years ahead…”

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- From the report: “The year closed with a mixed result at the Copenhagen climate change conference. Meanwhile, hopes of early passage for carbon cap-and-trade legislation in the US and Australia were not realised in 2009 – although progress remains possible in 2010 or 2011. Public support for sustainable energy remained intact in most countries, but action to curb emissions moved a few places down the list of priorities for some voters as a result of the recession, the controversies over climate science during the winter of 2009-10 and the cold weather that hit the most populated parts of the Northern Hemisphere around the same time. By the spring of 2010…the sector was facing fresh challenges as a second phase of the economic downturn developed, with governments running into pressure to cut their deficits and volatility returning to markets…The story of 2009, however, was one of resilience for sustainable energy…”