Clean Edge Views
Renewable Energy's Investment Hockey Stickby Joel Makower
December 1, 2005
Global investments in renewable energy seem to be growing faster than any of us thought. If current trends continue, we'll soon be seeing the hockey-stick-shaped growth curves that have become iconic shorthand in technology sectors for hyper-paced growth.
A newly formed alignment of legal, financial, and investment interests will direct "trillions" of U.S. dollars over the next 10 years into evolving markets linked to climate change, clean technology, and sustainable use of natural resources, according to a report being prepared for the United Nations Environment Programme. "The Working Capital Report," to be published in March 2006 by the UNEP Finance Initiative, is the culmination of a series of studies conducted during 2004 and 2005.
What was once considered a financial niche area is poised to become mainstream as institutions with trillions of dollars under management embed environmental, social and governance thinking into their investment approach, UNEP said in a statement.
"There is no question that 2005 will be seen as the watershed when the mainstream banking, insurance and investment worlds realized the scale of the commercial opportunities unfolding in the new carbon, clean-tech and sustainable natural resource markets and, also, the legal risks of not being a leader in this area," said UNEP Executive Director Klaus Toepfer.
Financial institutions working with UNEP predict that greenhouse gas emissions trading markets could reach US$2 trillion a year by 2012 and that the market providing finance for clean energy technologies could reach US$1.9 trillion by 2020.
UNEP's data trumps that of a report released in late October (Download - PDF) by the Renewable Energy Policy Network for the 21st Century, or REN21, global investment in renewable energy set a new record of US$30 billion in 2004. That's a far, far bigger number than others have projected, such as the Cleantech Venture Network, which not long ago projected that investments in clean technology -- a broader category than just renewable energy -- would total US$10 billion between 2005 and 2009.
(Clean Edge projected earlier this year that markets for just three technologies -- solar photovoltaics (PV), wind power, and fuel cells -- would grow to more than US$102 billion annually by 2014, but that measures purchases of these technologies, not investments in them.)
REN21 is remarkable not just for its large numbers. The report has an impressive pedigree: REN21 was sponsored by the German Federal Ministry for Economic Cooperation and Development and the German Federal Ministry for the Environment, Nature Conservation and Nuclear Safety. Formally established in Copenhagen in June, REN21 is now supported by a steering committee of 11 governments, 5 intergovernmental organizations, 5 nongovernmental organizations, and several regional, local, and private organizations.
The report is one of the most thorough accountings I've seen of the state of renewables worldwide. According to its findings:
Renewable energy supplies 17 percent of the world's primary energy, counting traditional biomass, large hydropower, and "new" renewables (small hydro, modern biomass, wind, solar, geothermal, and biofuels). Traditional biomass, primarily for cooking and heating, represents about 9 percent and is growing slowly or even declining in some regions as biomass is used more efficiently or replaced by more modern energy forms. Large hydropower is slightly less than 6 percent and growing slowly, primarily in developing countries. New renewables are 2 percent and growing very rapidly in developed countries and in some developing countries.
The fastest growing energy technology in the world has been grid-connected solar PV, with total existing capacity increasing from 0.16 gigawatts (GW) at the start of 2000 to 1.8 GW by the end of 2004, for a 60 percent average annual growth rate during the five-year period.
During the same period, other renewable energy technologies grew rapidly as well, says REN21:
- wind power: 28 percent
- biodiesel: 25 percent
- solar hot water/heating: 17 percent
- off-grid solar PV: 17 percent
- geothermal heat capacity: 13 percent
- ethanol: 11 percent
These compare with annual growth rates of fossil fuel-based electric power capacity of typically 3-4 percent (higher in some developing countries), a 2 percent annual growth rate for large hydropower, and a 1.6 percent annual growth rate for nuclear capacity during the three-year period 2000-2002.
Renewable energy investments now come from a highly diverse range of public and private sources, says the report, "aided by technology standardization and growing acceptance and familiarity by financiers at all scales, from commercial finance of hundred-million- dollar wind farms to household-scale micro-financing." One recent investment trend is that large commercial banks and stodgy energy utilities are starting to notice renewable energy investment opportunities.
Examples of large banks that are "mainstreaming" renewable energy investments are HypoVereins Bank, Fortis, Dexia, Citigroup, ANZ Bank, Royal Bank of Canada, and Triodos Bank, all of which are very active in financing renewable energy. Investments by traditional utility companies, which historically as a group have been slow to consider renewables investments, are also becoming more "mainstreamed." Examples of utilities active in renewable energy include Electricit