2008 - a year of two halves for clean energy investment
Total new investment in clean energy worldwide rose 4.4% during the course of 2008 and exceeded the $150bn mark for the first time, according to full-year figures released today by New Energy Finance. The growth rate in investment is dramatically down from the 60% compound recorded over 2006 and 2007, and the data also show a very strong first half giving way to a much weaker second half. This pattern suggests that 2009 will get off to a subdued start, although policy moves, particularly in the US, may restore momentum later in the year.
Today’s figures, based on New Energy Finance’s database of deals and projects in clean energy worldwide, show that total new investment in the sector in 2008 was a record $155bn, compared with $148bn in 2007. That investment in 2008 ended up higher than in 2007 is testament to the powerful drivers that are pushing the clean energy sector forward - concern about climate change, worries about energy security and the need to build new generating capacity to keep up with economic growth in developing countries and to replace ageing power stations in Europe and North America.
The largest single element in the investment total was asset finance – investment in projects such as wind farms, solar parks, biofuel plants and biomass and waste-to-energy installations. Asset finance new build in 2008 was $97bn, up from $84.5bn in 2007. The main reason for this increase was hectic financing of wind and solar projects, particularly in the European Union and North America but also increasingly in less obvious territories such as China, Eastern Europe and Latin America.
A second important element was venture capital and private equity investment in clean energy companies, totalling $13.0bn in 2008, up sharply from $9.8bn in 2007. VC/PE investors were to some extent taking up the slack from the public markets, where 2008’s sharp falls in share prices made it hard for clean energy firms to raise fresh capital. Total public market net investment last year was $10.3bn, down more than half from 2007’s record of $23.4bn. The biggest public market financing of 2008 was EDP Renovaveis’s EUR 1.6bn initial public offering in Portugal, while the many significant VC/PE deals of the year included the EUR 300m ($398m) raised by Dutch renewable energy project developer Econcern and the $300m raised by US thin-film solar panel producer Nanosolar.
However the statistics also show that 2008 was a year of two halves: the first half saw new investment (excluding government and corporate R&D and small-scale projects) reaching $65.5bn, up a very respectable 40% on the same period in 2007, while the second half saw a deceleration to $54.4bn – a drop of 17% on H1 and down 23% on the same period in 2007.
Michael Liebreich, chairman and chief executive of New Energy Finance, commented: “It is encouraging to see that clean energy investment was so strong in 2008, despite everything that was going on in the world economy. Having said that, the big change late in the year was that debt and tax credit finance for renewable energy projects became much harder to find because of the problems of the banks. This meant that investment in wind farms, solar plants and the like slowed fairly dramatically in the second half.
“The dearth of debt finance will continue into 2009. In addition, public stock markets remain fragile, and this will deter clean energy firms wanting to launch IPOs or secondary issues. So it looks likely that total investment levels in the first half of this year will be more subdued than the first six months of 2008. What happens after mid-year will depend on two things: whether the banks start to translate historically low central bank rates into lending to companies and projects, and whether administrations around the world deliver on their promises to make a push for clean energy part of any fiscal stimulus packages. President-elect Obama has committed to doubling US renewable energy capacity within three years, which would not be a particularly ambitious target if it were not for the problems of the world’s capital markets.”
Looking at individual sectors within clean energy, wind was once again by far the largest in terms of new investment, while solar, in second place, increased the gap over third-placed biofuels. Total third party (venture capital, private equity, public market and asset finance) investment in wind was $52.9bn, down slightly on 2007’s $53.7bn. The equivalent total for solar was $31bn, up sharply from $23.5bn the previous year, while biofuels reached $20.7bn, down a little from $21.5bn in 2007. Other renewables such as geothermal and mini-hydro jumped to $6.4bn, but there was a sizable fall to $5.6bn in investment in biomass and waste-to-energy. Other low-carbon technologies such as fuel cells and energy efficiency devices saw a pronounced fall in investment, particularly via the public markets, their total declining from $5.2bn to $3.2bn in 2008.
Government research and development bucked the trend set by financial investors, growing around 7% during the course of the year, as did to a large extend RD&D investment by companies, growing at 5%.
Total M&A activity, including private equity buy-outs and projects changing hands was $57.2bn in 2008, narrowly down on 2007’s $59.1bn. This is not included in the new investment figures above, because it represents money moving from one investor to another rather than new money coming into the sector. Big M&A deals during 2008 included Scottish & Southern’s EUR 1.8bn ($2.4bn) acquisition of Airtricity and Bosch Group’s EUR 1.1bn ($1.5bn) takeover of ErSol Solar Energy.
As far as the outlook is concerned, New Energy Finance sees clean energy moving from supply-constrained markets in 2007-08 to demand- and finance-constrained markets in 2009. Renewable energy technologies are becoming cheaper as they reach scale and gain operating experience. This trend has been obscured recently by surging commodity prices and supply chain bottlenecks, but with new industrial capacity coming on-line we are about to see prices drop as they come back in line with costs and a buyer's market develops.
For further information, please contact:
Angus McCrone, Chief Editor, New Energy Finance
+44 207 092 8834
Ethan Zindler, Head of North American Research, New Energy Finance
+1 703 486 5667
Michael Liebreich, CEO & Founder
New Energy Finance Limited
2nd Floor, New Penderel House
283-288 High Holborn
London WC1V 7HP
tel: +44 20 7092 8800
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