Global Trends In Sustainable Energy Inverstment 2007 (Report of the Week)
Renewable energy is growing Fast. A recent UNEP report (Global Trends In Sustainable Energy Inverstment 2007) outlines how this is all being financed, what the trends are, how the drivers are changing and how the trend is represented around the world.
Global Trends in Sustainable Energy Investment includes data showing that
investments in renewable energy and energy efficiency industries set a new record
of more than $100 billion worth of transactions in 2006. In 2007, the upward trend
continues, with capital investments occurring in sectors and regions previously
considered too risky and too illiquid to merit the attention
of the institutional investment community.
Paris, 20 June 2007 - Climate change worries coupled with high oil prices and increasing government support top a set of drivers fueling soaring rates of investment in the renewable energy and energy efficiency industries, according to a trend analysis from the UN Environment Programme.
The report says investment capital flowing into renewable energy climbed from $80 billion in 2005 to a record $100 billion in 2006. As well, the renewable energy sector's growth "although still volatile ... is showing no sign of abating."
The report offers a host of reasons behind and insights into the world's newest gold rush, which saw investors pour $71 billion into companies and new sector opportunities in 2006, a 43% jump from 2005 (and up 158% over the last two years. The trend continues in 2007 with experts predicting investments of $85 billion this year).
In addition to the $71 billion, 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, according to the report.
While renewable sources today produce about 2% of the world's energy, they now account for about 18% of world investment in power generation, with wind generation at the investment forefront. Solar and bio-fuel energy technologies grew even more quickly than wind, but from a smaller base.
Renewables now compete head-on with coal and gas in terms of new installed generating capacity and 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.
Says UNEP Executive Director Achim Steiner: "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.
"The other key message is that this is no longer an industry solely dominated by developed country industries. Close to 10 per cent of investments are in China with around a fifth in total in the developing world. We will need many sustained steps towards the de-carbonizing of the global economy. It is clear that in respect to renewables those steps are getting underway."
Says Yvo de Boer, Executive Secretary of the UN Convention on Climate Change: "As governments prepare to launch begin a new round of post-2012 climate change-related negotiations later this year, 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 New Energy Finance Ltd, a leading provider of research and analysis on the clean energy and carbon markets, which prepared the report for UNEP's Paris-based Sustainable Energy Finance Initiative.
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 (although one report conclusion is that the sector is becoming more independent of the price of oil).
"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."
Among the report's other key points and conclusions:
- Renewable energy and efficiency markets are growing more global and enjoying easier access to capital markets;
- Capital is coming from the venture investment community, the stock markets and internal refinancings, signaling the sector's a shift to a more mainstream status;
- Risk and uncertainly can be reduced through diversification across technologies and geography;
- Energy efficiency is a significant but largely invisible market, attracting increasing attention as investors realize its important role in meeting rising energy demand;
- Capital investors are now more closely aligned with industry proponents in their views of expected growth.
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