Current investment flows
Climate-specific investment flows are growing, with US$ 268 billion invested per year from the private sector and US$ 96 billion per year from the public sector.
While data from IEA and UNEP indicate at least US$ 0.7 trillion in incremental costs for the sectors outlined above, the Climate Policy Initiative estimated that approximately US$ 364 billion was invested globally in climate-specific project investment in 2011. Of this, US$ 14 billion was for adaptationn and the remainder for mitigation, chiefly for renewable energy generation (54% of mitigation investment), energy efficiency (18%), sustainable transport (10%) and other projects,o including land use, waste and fuel switching.50 The ratio of public to private investment was about 1:3 in 2011 (see Figure 8). Private sources of investment dominated, with approximately one-third of overall climate-specific investment originating from project developers.
*Development financial institutions include national, bilateral and multilateral financial institutions. VC = venture capital; PE = private equity.
Source: Climate Policy Initiative51
Investment in clean energy has rapidly grown over the past few years.
Investment in clean energyp grew at an average rate of 33% per year between 2004 and 2011, with the highest growth in the solar sector.52 Rapid growth in the industry has partially resulted from the reduced cost of wind and solar power combined with more generous subsidy programmes. Bloomberg New Energy Finance estimates that small-scale solar projects (less than 1 megawatt) alone attracted US$ 22 billion in the second quarter of 2012, 13% up from the same quarter in the previous year. Over 2011, solar module prices fell by 50%, and by the end of 2011 it was also clear that installed renewable energy had surpassed overall installed nuclear capacity by 50% globally.53
Clean energy technologies have experienced dramatic cost reductions, due to:
- the adoption by many countries of clean energy policies and frameworks over the past decade
- growth in emerging markets
- beneficial economic stimulus packages favouring clean energy investment
- rising costs of fossil fuels
The past year, however, has brought signs of slowing investment in wind and solar energy as governments have reduced subsidies.q Demand has also dropped following a fall in industrial output during the global financial crisis, and the current oversupply in the solar and wind sectors could lead to consolidation in the market in the short to medium term.54
In the longer term, the current revolution in shale gas could place downward price pressure on carbon-intensive energy sources, making renewables comparatively less attractive investments. While gas (which is less carbon-intensive than coal) will continue to be part of the energy mix in a green-growth scenario, its contribution will need to decrease over time to less than 3% of overall power investment needs by 2050, according to the IEA.55 Avoiding gas ‘lock-in’ will be a major challenge for governments in the coming decade.
Note: Data includes clean energy asset finance, public markets, small distributed capacity (solar photovoltaic), venture capital and private equity funding and adjustments for reinvested equity.r
Source: Bloomberg New Energy Finance56
Global green investment could be accelerated by focusing more on developing country markets as a source of investment.
Looking through a clean energy lens, investment in asset finance originating from non-OECD countries for both domestic and cross-border uses grew from US$ 4.5 billion in 2004 (19% of total asset finance) to US$ 68 billion in 2011 (41% of total asset finance), at a rate of 47% per year (see Figures 1.5, 1.6). Foreign cross-border investment from outside the OECD represented the highest growth rate in any clean-energy flow category: 61% per year on average, a 28-fold increase.57 Based on current growth rates in investment originating in non-OECD countries, clean energy asset finance flows are expected to exceed those originating from the OECD in 2012. In the wake of the global financial crisis, investment originating from non-OECD countries did not slow as much as those from the OECD, highlighting their resilience and potential as a source of future investment for green growth.
Note: Excludes the following private money flows: small-scale distributed solar photovoltaic investment (US$ 73 billion), venture capital/private equity/public markets/reinvested equity adjustment (US$ 13 billion), and other unknown private flows. Private finance flows include new-build clean-energy asset finance only. Public finance flows estimated by the Climate Policy Initiative (2012) and includes climate-change adaptation flows (total US$ 14 billion).
Note: Data includes new clean-energy asset finance only, and excludes unknown flows, public markets, small distributed capacity (solar photovoltaic), venture capital and private equity funding and adjustments for reinvested equity.
Source: Bloomberg New Energy Finance60