It may have been a more bullish market during the first three months of the year, but clean energy investors were clearly feeling butterflies.
In fact, global investment in clean energy during the first three months of 2013 was lower than in any quarter for the past four years, according to the latest figures from research company Bloomberg (News - Alert) New Energy Finance. The first quarter investment figure for renewable energy, energy efficiency, and energy-smart technologies was $40.6 billion—down 22 percent on the same period of 2012, and down 38 percent on the final quarter of last year.
According to the analysts, the decline reflected the effects of policy uncertainty in key clean energy markets such as the United States and Germany; a lull in financing in some relatively buoyant markets, such as China and Brazil; and a diminishment of investment levels caused by the recent, sharp declines in technology costs— particularly those of solar photovoltaic panels.
Michael Liebreich, chief executive of London-based Bloomberg New Energy Finance, commented, “The last 18 months have seen a number of significant support programs launched in the aftermath of the financial crisis come to an end. The plummeting cost of clean energy technology has kept activity high in terms of megawatts of capacity, but not so much in dollar terms.”
Liebreich noted, “For investment in clean energy to play its role in stemming the growth in world emissions, we would need to see investment levels at least double by 2020, rather than fall. Having said that, as always, there are some regions and technologies doing well. And previous history has shown that the first quarter of the year is generally the weakest, as banks and investors [catch] their breath from a rush of year-end deal-closing.”
During Q1 2013, the industry saw a 54-percent year-over-year drop in U.S. clean energy investment, to $4.5 billion; a 15-percent setback in the Chinese total, to $8.8 billion; and a 25-percent drop for Europe, to $13.4 billion. Outside India and China, the rest of Asia bucked the trend—with a 47-percent jump to a record $10.1 billion, led by a surge of investment in Japan to $8.2 billion.
Among different types of investments, the largest decline was in the asset finance of utility-scale projects, such as wind farms and solar parks. This category of funding fell 34 percent, to $19.3 billion.
Policy uncertainty played a part in limiting asset finance in the early months of this year. In particular, wind farm investment was stunted in the United States this winter because a key incentive, the Production Tax Credit (PTC), appeared to be heading for sunset at the end of 2012.
Ultimately, the PTC was extended, but the uncertainty about its status had already front-loaded financings and construction of U.S. wind projects into calendar years 2011 and 2012.
Relatively little new wind project construction is expected in 2013. Investment in some European countries, notably Bulgaria and Romania, has been dampened by “retroactive” government plans to curb the revenues of already-operating projects. Confidence was even shaken in Germany by a recent discussion about a retroactive change to its tariff for existing projects, although this does not now appear likely to happen.
The largest deal of the quarter was the $1.9-billion financing of the 288MW Butendiek offshore wind farm in German waters, but there was a big gap to the next largest— the $390-million financing of a 234MW Gas Natural Fenosa onshore wind farm in Mexico, and the $345-million investment decision for a 70MW Kyocera (News - Alert) solar PV plant in Japan.
Not only did asset finance of large projects slip in Q1, but so, to a lesser extent, did investment in small-scale installations of less than 1MW. Investment in the latter—mainly photovoltaic (PV) solar units on residential and commercial rooftops—dipped 8 percent in the first quarter, to an estimated $18.5 billion, driven largely by the reduction in solar panel costs over the course of 2012.
The average PV module in March 2013 was selling on world markets for $0.81 per Watt, down 16.5 percent on the $0.97 figure of a year earlier—and an extraordinary 81 percent below that for early 2008.
Liebreich commented: “The slump in the price of solar hardware has been remarkable. It is fundamentally driven by improvements in technology and economies of scale throughout the supply chain. But it also reflects the impact of substantial overcapacity: The industry … glut has had a savage effect on producer margins. We forecast that the number of gigawatts of solar installed in 2013 will grow by about 20 percent compared to last year; but, even that is not going to be enough to absorb all of the over-capacity. It is going to be another tough year for manufacturers—and a good year for installers, as long as they have access to finance.”
The brightest signs in Q1 2013 relate to investment raised in the public markets or stock exchanges. This was been very depressed in recent years, in the face of an 80-percent decline in sector share prices to a low in late July last year. Since then, however, there has been a rally of around 30 percent in the WilderHill New Energy Global Innovation Index (NEX), which tracks the performance of 96 clean energy stocks worldwide.
The slightly improved picture on share valuations helped to stimulate a rebound of 89 percent in public markets investment in clean energy companies, to $1.7 billion in the first quarter. The largest deal was the $394-million IPO in London of Greencoat UK Wind, a sector-focused infrastructure fund—including an unprecedented investment of $76 million by the U.K. Department for Business, Innovation and Skills.
Venture capital and private equity investment in clean energy added up to $1.3 billion in the first quarter—down 29 percent on the same quarter in 2012. Among the biggest VC/PE deals between January and March were $308 million of private equity expansion capital for National Electric Vehicle Sweden (formerly Saab Automobile AB), and $125 million of expansion capital for U.S. solar installer Sungevity (News - Alert).
The biggest increase in investment in any region was in Asia-Oceania, excluding China and India. Its record quarterly figure of $10.1 billion can be attributed mainly to a jump in small-scale project outlays from $5 billion a year earlier, to $7.9 billion in Q1 2013.
Japan saw small-scale solar investment reach $6.7 billion in Q1 2013, up more than double from a year earlier.
Although Europe saw a decline in small-scale project investment—fueled partly by the sharp declines in solar technology costs—Germany and the U.K. nevertheless experienced modest growth in overall investment in Q1 2013, of 8 percent and 1 percent, respectively, compared to a year earlier. Germany reached $3.9 billion in the first quarter, thanks in part to the Butendiek transaction – and the U.K. figure was $1.8 billion. Investment in Spain in Q1 was less than $100 million, down 96 percent on the first quarter of 2012.
Italy and France also dropped off, reaching $1.5 billion (down 61 percent) and $0.9 billion (down 33 percent), respectively.
Total new investment in clean energy worldwide in 2012 was $268.7 billion—down from a peak of $302.3 billion in 2011, but still more than five times the total in 2004.
Edited by Braden Becker