Summary and implications

Recently published reports have provided an insight into renewable energy investment in these difficult times. On 22 May 2009, Ernst and Young (EY) published their latest Renewable Country Attractiveness Indices. The United Nations Environment Programme (UNEP) published their own report into the market on 3 June 2009 entitled Global Trends in Sustainable Energy Investment 2009.

The reports make it clear that the renewables market has been impacted by the global economic crisis. However,

  • it has remained relatively well insulated in comparison to other markets such as manufacturing.
  • This is partly due to government remaining committed to encouraging investment in this field as they seek to tackle very real climate issues.
  • Additionally, private equity and venture capital appears attracted to the growing and dynamic alternative energy market.

In the UK the impact of the recession has been felt strongly. However, the Government has retained its focus on climate change and placed investment in this area at the centre of many of its recovery plans.

The reports

Both reports provide useful information on the renewables market and suggest that whilst investment may have slowed down, there remains considerable optimism. This is backed up by a KPMG report which found that 78% of senior executives surveyed in the energy industry believe renewable energy projects are economically viable despite collapsing fossil fuel and commodity prices and the credit crunch.

Global Trends in Sustainable Energy Investment 2009

The UNEP report states that overall in 2008 a total of $155bn was invested globally in the market; a more than four-fold increase on 2004. However it was only a 5% increase on 2007 compared to the previous two years of over 50% growth. This was mainly due to the global financial crisis which saw investment in the second half of the year drop off significantly as banks became more cautious with their lending. Reports suggest now however that the banks are more willing to lend again.

Furthermore, throughout the period, the level of venture capital and private equity funding in clean energy, particularly in the UK, remained impressive. Globally $19.3bn was invested by venture capital and private equity in 2008, an increase of 43% from 2007. However the UNEP report notes that even in the second quarter of 2009 despite some promising signs, there is still a long way to go before overall investment reaches 2007-2008 levels.

Despite this, renewable energy investment clearly remains something governments are focussed upon. UNEP note that leading governments committed over $180bn to sustainable energy within their stimulus packages. This is likely to help in countering the drop in investment in renewables via the world's stock markets; which fell 51% in 2008 to $11.4bn. significantly, the amount of money changing hands in mergers and acquisitions in 2008 fell 16.2% to $21.7bn.

Renewable Country Attractiveness Indices

UNEP's findings are confirmed by the EY report which looked at the first quarter of 2009. The impact of the global economic crisis was notable across all markets and indices. In particular the effects were felt to be particularly pronounced in the UK. The US extended its lead at the top of the 'all renewables' list, with the rest of the top five made up of (in order): Germany; China; India; and Spain. The UK dropped below Italy into 7th largely due to considerable European funding in Italy. However recent allegations of corruption related to renewables investment may undermine Italy's position.

Overall, European nations are deemed to have benefited from the European Recovery Plan, reinforced by the announcements from the EC that one-third of Cohesion Policy funds will target a 'green economy'. The impact of the UK Budget 2009 was also felt to have had a positive impact on the UK's attractiveness to investors. In particular the UK's attractiveness with regards to offshore wind is highlighted. However it is felt that, in particular with regard to the new banding for Renewable Obligation Certificates (ROCs), much of the UK's attractiveness is long-term rather than short-term. The introduction of carbon budgets in the April Budget is also seen to have a long-term positive impact on investment opportunities.