The secret to the success of clean energy investment
Mr Nathaniel Bullard is Director of Content at Bloomberg New Energy Finance, the clean energy and carbon markets analysis group of Bloomberg LP. In his role he oversees analytical engagements across sectors in clean energy, as well as the group's executive engagements through its Leadership Forum Series and yearly Summit. He is also a contributor to Bloomberg's cross-platform initiatives to analyse mergers and acquisitions, and environmental, social and governance data. More BNEF opinion editorials here.
Bloomberg New Energy Finance--the clean energy and carbon markets analysis group of Bloomberg LP--explains how clean energy investment survived the financial crisis to storm to new heights in 2010.
Clean energy investment has seen incredible growth since the middle of the last decade, from just over US$50 billion in 2004 to nearly a quarter of a trillion dollars in 2010. Few, if any, sectors can point to such a robust and broadly-based growth during a tumultuous time in the world economy.
Look at the numbers: Clean energy has not had a down year since the creation of major market support programmes in Germany, which began in 2004. The growth rate was nearly 50 percent in 2005 and 2006, and even remained high--19 percent--during the first year of the financial crisis (and had the crisis not occurred in 2008, the rate would have been much higher). In fact, the only year of low growth was in 2009, during the depths of the economic downturn.
What were the reasons for this change in fortune? The financial crisis hit two key financing channels for clean energy: The public markets for IPOs and secondary stock offerings, and the asset finance lending market.
In Q4 2007, companies raised US$12.4 billion through IPOs and other offerings, with more than half of that money coming in a single spinoff IPO of a European generator and developer Iberdrola's wind business. In Q1 2009, that number plummeted to just 0.2 billion, with only a single tiny IPO in Hong Kong.
Lenders were also deeply affected by the evaporation of confidence--and credit--in the financial system. Debt comprises the majority of the project financing for most large clean energy projects, and so a change in lender confidence was felt strongly, if not immediately. Q1 2009 dropped 40 percent from the last quarter of 2008. Lack of credit and a deep aversion to risk make it difficult--if not impossible--for lenders to lend and of course, for borrowers to borrow.
But the market came back with a vengeance in 2010: Despite ongoing economic weakness, global total new investment in clean energy topped US$240 billion--a 30 percent growth from 2009. Government support for clean energy was behind the surge. Without it, the sector might have had another year of flat growth, or even a contraction. We will explore the nature of this commitment in our next post.
The big question now is whether this healthy growth will continue. As any sector or company expands, it begins to encounter the 'law of large numbers'--it becomes more and more difficult to sustain high rates of growth because the absolute numbers required to maintain any fixed rate continue to rise as well.
Global total new investment in clean energy 2004-10 ($BN)
Note: Includes corporate and government R&D, and small distributed capacity. Adjusted for re-invested equity. Does not include proceeds from acquisition transactions.
|For the next few weeks till SIEW 2011, Knowledge Partner Bloomberg New Energy Finance will run a series of opinion editorials on SIEW, where its lead analysts will bring insights pertinent to clean energy in Singapore and Asia.|
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