Investment drops after challenging year for low carbon technology
Investment in low carbon technologies fell 11 per cent in 2012, according to a new report by market analysts Bloomberg New Energy Finance, which also shows China has overtaken the US as the world’s largest contributor to renewable energy.
The report shows that investment in low carbon technologies is actually holding up pretty well after warnings from the report’s authors last January that 2012 would be a “challenging year” for the sector. We took a look at some of the figures to find out how tough economic conditions and investor uncertainty over renewable energy policies in the UK have changed the investment landscape.
Overall investment drops
The report shows that overall global investment in low carbon energy dropped by about $30 billion in the space of a year.
Comparing investment last year to 2011 may be unfair, as 2011 saw the highest ever rate of investment in the sector. But it is only the second time in almost a decade that the figure has dropped on a year before – the last time being in financially-troubled 2009.
The report says that the drop in investment is due to the difficult global financial environment that has affected many sectors and because investors are unsure of the risks involved in investing due to government energy policy reforms.
Of the $270 billion that was invested in clean energy worldwide, most of the money went into renewable energy projects such as wind farms, solar parks and biofuel plants. Investment in those projects in 2012 was just under $150 billion, about $30 billion less than in 2011. But not all investment dropped-off. Investment in smaller renewable energy projects increased by just under $4 billion – much of which was put towards building and installing more solar panels for rooftops.
So while overall investment in 2012 was less than in 2011, there was still significant investment in renewable energy projects.
Image - investment in clean tech (note)
China overtake the US, while European investment drops
China overtook the US as the largest investor in low carbon energy, channeling almost $68 billion into low carbon technologies in 2012 – the most money it’s ever put into these technologies, and 20 per cent higher than in 2011. A large part of this was down to China’s fast growing solar industry, according to the Financial Times.
Meanwhile, the United States’s investment dropped about $12 billion, to $44 billion in 2012. This was largely due to a rush of investment in 2011 when a number of key renewable energy subsidies were expected to expire. The booming US gas market also meant that renewable energy faced strong competition for money in 2012.
The UK’s investment in renewable technologies also dropped 17 per cent in 2012, to just over $8 billion. This trend was mirrored across Europe, with German investment dropping 27 per cent while France’s fell by 35 per cent.
Bloomberg New Energy Finance tells Carbon Brief that the drop in investment in the UK is partly down to uncertainty over the electricity market reforms that are at the heart of the government’s new energy bill. It also points out that the 2011 figure was particularly high because investors took advantage of generous subsidies for solar power – with the drop in 2012 reflecting the big cut in the subsidy early in the year.
Investing less rather than installing more
Solar power received the most investment of all the renewable energy technologies in 2012, but even that was down nine per cent. Investment in wind power also reduced, by 13 per cent. The only technology that got more investment in 2012 than in 2011 was small hydropower.
Bloomberg New Energy Finance told Carbon Brief the reason solar did so well was largely because of more small scale projects in the US and Australia, as well as larger scale projects in China and Japan. The cost of solar technology also continued to reduce in 2012. This may have encouraged investors to put money into solar rather than other renewable energy technologies.
But while a drop in the costs of solar panels and wind turbines makes renewables more attractive for investors as they can get more of them for the same money as they did a year ago, investors may actually choose just to spend less and get the same amount – meaning a reduction in investment overall.
Image - investment in clean tech by source (note)
Temporary decline?
While global investment in renewable energy has reduced from 2011, the Chief Executive of Bloomberg New Energy Finance, Michael Liebreich, said that “the most striking aspect of these figures is that the decline was not bigger” given the challenges the sector faced in 2012. The report suggests there are encouraging signs that the renewables market is broadening beyond China, the US and Europe, providing new opportunities for growth. While investment may be down overall, the renewable energy market is still broadly healthy going into 2013.