TODAY’S STUDY: Global Trends In Renewable Energy Investment 2016

Global Trends In Renewable Energy Investment 2016

March 2016 (United Nations Environment Program/Bloomberg New Energy Finance)

Key Findings

-2015 produced a new record for global investment in renewable energy. The amount of money committed to renewables excluding large hydro-electric projects rose 5% to $285.9 billion, exceeding the previous record of $278.5 billion achieved in 2011. This record was achieved despite exchange rate shifts that depressed the dollar value of investments in other currency zones, and despite sharp falls in oil, coal and gas prices that protected the competitive position of fossil fuel generation.

-Even more striking was that the amount of generating capacity added in wind and solar photovoltaics last year came to 118GW, far above the next highest annual figure, 2014’s 94GW. Overall, renewables excluding large hydro made up 53.6% of the gigawatt capacity of all technologies installed in 2015, the first time it has represented a majority.

-Global investment in renewable power capacity1, at $265.8 billion, was more than double dollar allocations to new coal and gas generation, which was an estimated $130 billion in 2015. However, the huge weight of conventional generation capacity already built meant that new, clean technologies only accounted for just over 10% of world electricity last year, as Chapter 2 shows. However, this did prevent the emission of some 1.5 gigatonnes of CO2 in 2015.

-Even though 2015 produced a record for overall investment, the sky is far from entirely blue. The United Nations climate change conference in Paris in December 2015, known as COP21, produced an unprecedented agreement among 195 countries to act for zero net emissions in the second half of the century. Nevertheless, the global emission trend remains worrying, as energy-related emissions are not forecast to peak until the late 2020s, at the earliest.

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-Last year was also notable as the first in which investment in renewables excluding large hydro in developing countries outweighed that in developed economies. The developing world including China, India and Brazil committed a total of $156 billion, up 19% on 2014, while developed countries invested $130 billion, down 8%. A large element in this turnaround was China, which lifted its investment by 17% to $102.9 billion, or 36% of the world total.

-However, other developing countries also raised their game – India saw its commitments rise 22% to $10.2 billion, while Brazil ($7.1 billion, down 10%), South Africa ($4.5 billion, up 329%), Mexico ($4 billion, up 105%) and Chile ($3.4 billion, up 151%) all joined it in the list of the top 10 investing countries in 2015. The list of developing countries investing more than $500 million last year also included Morocco, Uruguay, the Philippines, Pakistan and Honduras.

-Investment in Europe slipped 21% to $48.8 billion, despite that continent’s record year for financings of offshore wind, at $17 billion, up 11%. The US enjoyed a 19% bounce in renewable energy commitments to $44.1 billion, its highest since 2011, with solar accounting for just over two thirds of that total. Japan attracted $36.2 billion, almost the same as in 2014, thanks to its continuing boom in smallscale PV.

-Renewable generation costs continue to fall, particularly in solar photovoltaics. In the second half of 2015, the global average levelised cost of electricity for crystalline silicon PV was $122 per MWh, down from $143 in H2 2014. Specific projects are going ahead at tariffs well below that – the record-breaker so far being a 200MW plant in Dubai being built by ACWA Power International, awarded a contract in January 2015 at just $58.50 per MWh.

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-Public market investment in renewable energy totalled $12.8 billion in 2015, down 21% on the previous year’s figure but close to the average for the years since 2008. The 2015 figure was unusually lopsided, however, with North American ‘yieldcos’ and European quoted project funds accounting for $6.2 billion of new equity, and US manufacturer and project developer SunEdison issuing $2 billion of convertibles. The US yieldco equity raising spree came to an almost complete halt after July as a result of a sharp share price correction. Overall, clean energy shares edged down 0.6% in 2015, in line with the US S&P500 index.

-Policy support for renewables remains fickle. A less friendly turn by the new UK government after the May 2015 election has been one example, and another may be the US Supreme Court’s decision in February 2016 to allow all legal objections to the Environmental Protection Agency’s Clean Power Plan to be heard before it can be implemented. It is also possible that the recent big fall in coal, oil and gas prices may tempt some developing countries to keep relying on fossil-fuel capacity for longer.

-There is rising interest in battery storage as an adjunct to solar and wind projects and to small-scale PV systems. In 2015, some 250MW of utility-scale electricity storage (excluding pumped hydro and lead-acid batteries) were installed worldwide, up from 160MW in 2014. Announced projects reached 1.2GW. The potential for storage to help balance variable renewable electricity generation, in both developed countries and remote developing country locations off the grid, is this year’s Focus topic and is discussed in Chapter 3.

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Executive Summary

Renewable energy set new records in 2015 for dollar investment, the amount of new capacity added and the relative importance of developing countries in that growth. All this happened in a year in which prices of fossil fuel commodities – oil, coal and gas – plummeted, causing distress to many companies involved in the hydrocarbon sector. So far, the drivers of investment in renewables, including climate change policies and improving cost-competitiveness, have been more than sufficient to enable renewables to keep growing their share of world electricity generation at the expense of carbon-emitting sources.

Last year saw global investment in renewables1 rise 5% to $285.9 billion, taking it above the previous record of $278.5 billion reached in 2011 at the peak of the ‘green stimulus’ programmes and the German and Italian rooftop solar booms. Figure 1 shows that the 2015 total was more than six times the figure set in 2004, and that investment in renewables has been running at more than $200 billion per year for six years now. Over the 12 years shown on the chart, the total amount committed has reached $2.3 trillion…

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Developing World Ahead

Renewable energy technologies such as wind and solar used to be seen by some critics as a luxury, affordable only in the richer parts of the world. This has been an inaccurate view for a long time, but 2015 was the first year in which investment in renewables excluding large hydro was higher in developing economies than in developed countries. Figure 4 shows that the developing world invested $156 billion last year, some 19% up on 2014 and a remarkable 17 times the equivalent figure for 2004, of $9 billion.2 Developed countries invested $130 billion in 2015, down 8% and their lowest tally since 2009.

A large part of the record-breaking investment in developing countries took place in China. Indeed that country has been the single biggest reason for the near-unbroken uptrend for the developing world as a whole since 2004. However, it was not just China – India also raised its commitment to renewables in 2015, and developing countries excluding China, India and Brazil lifted their investment by 30% last year to an all-time high of $36 billion, some 12 times their figure for 2004.

Among those “other developing” economies, those putting the largest sums into clean power were South Africa, up 329% at $4.5 billion as a wave of projects winning contracts in its auction programme reached financial close; Mexico, 105% higher at $4 billion, helped by funding from development bank Nafin for nine wind projects; and Chile, 151% higher at $3.4 billion, on the back of a jump in solar project financings. Morocco, Turkey and Uruguay also saw investment beat the $1 billion barrier in 2015…

Energy Abundant, Competition On Costs

The global energy sector has changed out of all recognition since the summer of 2014. Oil, as measured by the Brent crude contract, fell in price from a high of $115.71-a-barrel on 19 June of that year, to $27.10 on 20 January 2016, a decline of 76%. The ARA coal contract dropped from $84-a-tonne on 28 April 2014 to $36.30 on 17 February 2016, intensifying a downward trend that has been unfolding since its high of $135 in 2011. The US Henry Hub natural gas price slid from around $4.50 per MMBtu in June 2014 to $1.91 in mid-February 2016…

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