Sustainable renewable investment growth management
Global investments in renewable power and clean fuels have been growing strongly in recent years. These have exceeded investments of USD200 billion per year for the past seven years. In 2016, the total new investment in renewable power and fuels was over USD260 billion. It is also worth noting that for the fifth consecutive year, total investments in new renewable electricity power generation capacities globally have been roughly twice those in fossil fuel electricity power generating capacities internationally (REN, Renewables Global Status Report, 2018).
Global investments in clean renewable energy have been focusing on solar power, followed closely by wind power. Asset finance of utility projects, such as wind farms and solar parks, has dominated global clean energy investments during 2016, with over USD187 billion. In 2017, the new clean investments have continued to be dominated by both solar and wind renewable projects. Each of these class of renewable investments accounted for roughly 47% of total global renewable investments. Solar power investments were over USD113 billion and wind power project investments were over USD112 billion. There have also been significant reductions in clean renewable energy costs with new technological innovations in recent years. These have helped to made renewable generation costs more cost competitive against fossil fuel options.
Internationally, the clean renewable electricity power generation sector has continued to attract far more clean investments than for fossil power or nuclear power generating plants. In 2016, it has been calculated that clean investments of nearly USD250 billion have been committed to construct new renewable power generation plants globally. These investments were about twice of USD134 billion of committed investments in new fossil and nuclear power generating facilities. These included some USD114 billion of investment in new fossil fuel-fired generating capacities and USD30 billion in new nuclear power capacities. Overall, clean renewable power generation has been accounting for over 63% of total new power generating capacity investments in 2016 globally.
Globally, renewable energy investments in developing and emerging economies have overtaken those in developed countries for the first time in 2015. In 2016, clean investments in developed countries retook their lead over developing countries. These were mainly due to new clean renewable energy policy drives introduced by various developed countries, as part of their Paris Agreement commitments. The clean investment trends in renewable energy globally have been varying widely by regions. Clean investments have generally increased in Europe and Australia whilst investments in India were stable. However, clean investments have declined in China, the USA, the Middle East, Africa, Asia-Oceania (except Australia) and Latin America.
China has been leading the global clean renewable energy investments with about one-third, around 32%, of global investments. Europe was second with 25% of global investments, the United States was third with 19% and Asia-Oceania was fourth with 11%. The Americas, Brazil and the Middle East and Africa region each accounted for 3% of the global clean renewable energy investments.
Globally, the top ten countries in clean investments included three emerging economies and seven developed countries. The top five countries included China, the United States, the United Kingdom, Japan and Germany. The next five countries included India, Brazil, Australia, Belgium and France.
However, there have also been significant rises in renewable investments in some specific individual countries globally. A good example is Singapore which increased its renewable investments by 14-fold to USD700 million. Vietnam also increased its renewable investments by over 140%, to USD700 million. Indonesia also increased its renewable investments by just below 85%, to USD500 million. Mongolia has increased its renewable investments to USD200 million in 2016 from having no renewable energy investment in 2015. Thailand has increased its renewable investments by 4% to USD1.4 billion. These new renewable investments have made Thailand the third largest country in renewable investments in the Asian region, after China and India.
Renewable finance and investment source management
The growing global clean renewable energy investments and green finances have been provided by a variety of green financial instruments. Debt financing has been making up the majority of clean investments going into many new utility-scale renewable energy projects. These included non-recourse loans, bonds or leasing for different renewable projects. At the corporate level, there have been various debt borrowings by different utility or project developers. Commercial banks have generally provided most of the project-level debt financing for renewable energy projects globally.
In addition to commercial banks and bond issues, other major sources of debt for renewable power assets have been borrowings directly from different national and multilateral development banks globally. Development banks have been providing major financing to renewable projects globally. Good international examples included Germany’s KfW which provided USD39 billion for environmental and climate financings. These included USD8 billion for renewable energy and USD23.5 billion for energy efficiency. The Asian Development Bank (ADB) had also provided USD3.7 billion for climate finance investments to support new clean renewable investments in developing member countries (REN, Renewables Global Status Report, 2018).
Green bonds have been an important asset class for clean energy investors around the world. These included various qualifying debt securities issued by development banks, central and local governments, commercial banks, public sector agencies and corporations, asset-backed securities, green mortgage-backed securities, project bonds, etc. In 2016, the green bonds issuance globally almost doubled to USD95 billion. These included the first sovereign green bond which was issued by Poland. Amongst the G7 countries, France has issued the highest number of green bonds, with USD33.7 billion of labelled green bonds which were tracked by the Climate Bonds Initiative since 2009. China has also increased its green bond issuance to USD27.1 billion and overtook the USA with
USD15.5 billion. Germany was at fourth place globally with USD13.6 billion of green bonds issued. The United Kingdom (UK) has been the world leader in structuring, underwriting and listing of international green bonds. However, there is more to do in terms of domestic pound sterling green bond issuance.
Institutional investors such as insurance companies and pension funds have tended to be more risk-averse investors in renewables. They have been more interested in more predictable cash flows of renewable projects that have already been in operation. In Europe, direct investments by institutional investors in clean renewable energy totalled USD2.8 billion in 2016. This represented a big growth, about ten times, of initial renewable investments of USD0.3 billion in 2010.
Electric utilities have continued to be an important source of on-balance-sheet financing and project-level equity financing for renewable projects. A good example is that nine of the largest European utilities have invested a total of USD11.5 billion in new clean renewable energy projects in 2015.