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Investors Pour Unprecedented Billions Into Renewable Energy


June 21, 2007


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.

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."

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).

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.

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."

 

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