Investment Trends

This year’s report finds a dynamic, rapidly growing renewable energy sector, with the economic gap between renewables and fossil fuels closing quickly, thanks to rising oil prices and growing recognition of the high cost of carbon emissions. As a result, investing in renewables is no longer just about “doing the right thing” and being green, but also about making green—and global investment trends reflect this thinking.

Investment growth rates have been accelerating for the past several years. In 2006, investment in new renewable electric and heating capacity came to $55 billion, climbing to a record high of some $71 billion in 2007. This is on top of tens of billions of dollars in capital investments in new manufacturing plants and equipment, and public and private funding for research and development—for a total investment flow exceeding $100 billion in 2006 and 2007.

Annual global investment in new electric and heating capacity is now about five times what it was in 2000, and it has risen almost 10-fold since 1995—the first year for which we have data. Wind power has become the dominant technology, with a 47 percent share for 2007, followed by solar photovoltaics (PV), at 30 percent. In fact, wind, PV, and solar thermal systems for water heating made up more than 85 percent of the global total in renewables investment in 2007.

Market Trends

These investments are driving the marketplace. We estimate that total renewable power capacity (excluding large hydropower) increased by 33 gigawatts (GW) in 2007, to 240 GW worldwide. It’s remarkable that this is almost 50 percent higher than the global total just three years ago (in 2004). Including large hydropower, renewables now provide more than 1,000 GW of electric power capacity; this compares to about 4,300 GW of total global power capacity.

Wind and solar PV combined account for about two-thirds of global market growth in renewables in 2007. Installed capacity of PV is still relatively low: there were about 10.5 GW of PV operating worldwide by the end of 2007. But PV is growing at breakneck speed and has rapidly become one of the world’s fastest growing industries. Over the past five years, capacity has risen by an average of 36 percent annually; grid-connected PV is rising far faster, with annual growth rates exceeding 50 percent in 2006 and 2007.

Growth in wind capacity continues to be strong as well, thanks in great part to the United States, which installed a record 5.2 GW in 2007, greatly exceeding early projections. Worldwide, the wind industry brought on line about 15 GW of new capacity in 2006, and added another 21 GW last year—compared with only 1 GW of new nuclear power capacity that came on line around the globe in 2006. Wind power has grown an average of more than 24 percent annually over the past five years, and global capacity totaled approximately 95 GW by the end of 2007. More than 70 countries now use the wind to generate electricity, including many developing countries that have recently come on board, such as South Africa, Mexico, and Iran.

Global capacity of small hydropower and biomass power came to 73 GW and 45 GW respectively by the end of 2006. Solar thermal for power generation is another promising technology that is again seeing growth, with new projects in the United States and Spain. And solar thermal for water heating continues its rapid rise. Rooftop solar collectors now provide hot water for more than 50 million households worldwide.

Biofuels production was up about 18 percent in 2006, with similar growth in 2007. As with wind, growth is being driven largely by the United States, which passed Brazil in ethanol production in 2005, and by Germany, which leads the world in biodiesel production. But the race is on as Brazil now has an ambitious program to increase sugar cane-based ethanol production 50 percent by 2009. And many other countries in the European Union, Africa, and Southeast Asia are becoming established biofuels producers.

Although renewables still represent a fairly small share of global energy demand, they are growing rapidly. Renewable power capacity (excluding large hydropower) represents almost 5 percent of total global power capacity, and its share is rising. And, of course, the contribution of renewables is already far higher than this in many countries.

The surge in production of ethanol and biodiesel in 2006 accounted for 17 percent of the increase in supply of all liquid fuels worldwide last year, and this share is likely to rise in coming years as well.

National Policies

Helping to drive these high growth rates, at least 64 countries now have national targets for renewable energy. At least 60 countries have policies to promote renewable electricity, while at least 53 countries, states and, provinces have biofuels mandates. Many of these targets and policies are in developing countries, and several additional developing nations are in the process of enacting policies. Worldwide, incentives for renewables exceed $20 billion per year, and it’s estimated that more than half of this is now going to biofuels.

Renewable portfolio standards and feed-in policies are spreading to an increasing number of countries, states, and provinces around the world. And many are having a significant impact. Just to give one example, thanks mostly to Germany’s feed-in law, the share of electricity from renewable sources there increased from 6.3 percent in 2000 to 12 percent in 2006. It’s estimated that renewables provided more than 14 percent of Germany’s gross electricity consumption by the end of 2007, well ahead of official targets for 2010. As a result of this success, the German government recently announced increased targets for renewables to account for 25–30 percent of electricity by 2020 (up from 20 percent), and some proposals now call for a target of at least 45 percent by 2030.

China Taking the Lead

China is without a doubt the biggest story in renewable energy in the past year. Based on current trends, China could well be the world leader in renewable energy within the next three years.

Following are a few key trends:

First, China continues to lead the world in production and use of solar thermal for water heating, with more than 65 percent of global capacity by the end of 2007. Today, more than one-tenth of China’s households rely on the sun to heat their water. China has more than 40 million solar thermal systems in place.

Second, wind power capacity increased at least another 2 GW in China last year (by some estimates the growth exceeded 3 GW). This means that, for the second year running, China doubled its installed capacity of wind. The average growth rate for wind power in China since 2004 exceeds 80 percent per year.

But solar PV is the biggest surprise. China is seeing the emergence of a dynamic solar manufacturing industry. Just three years ago, in 2004, China produced about 65 megawatts (MW) of PV. In 2007, it was expected to manufacture more than 1,500 MW. And more than 4,000 MW of new PV are expected in 2010—or far more than the entire world produced in 2006. China’s entry into the industry will likely have far-reaching implications, by helping to drive down prices dramatically and making PV more affordable in markets across the globe.

Most solar PV manufactured in China today is for export—with the majority going to Germany and Spain. But PV use is rising in places like Rizhao, a city of about 3 million people in China’s northeast that powers most of its outdoor lighting and heats almost all of its water with the sun. The city’s leaders see solar energy as a starting point for sparking social, economic, and cultural development through a cleaner environment—and they are already seeing great benefits.

Cities Turning to Renewables

Rizhao is among a growing number of cities around the world that are investing in renewables and energy efficiency, setting targets, and even establishing mandates for renewable energy use.

From Portland, Oregon, to New York City; from Adelaide, Australia, to Vancouver, Canada; and from Cape Town, South Africa, to Daegu, Korea, cities are going green. And they are doing this thanks to a growing realization that energy choices can achieve a number of goals, including: reducing the threat of climate change, creating new local jobs, ensuring more secure and reliable energy supplies, and improving the natural environment and health of their citizens.

The Many Benefits of Renewables

Renewables are already providing enormous benefits to millions of people around the world, in addition to the energy that they produce.

Worldwide, more than 2.5 million people now have jobs in the renewable energy sector. In 2006, well over 200,000 people were employed in renewables industries in Germany alone.

Although global estimates are not available, the German government estimates that renewable energy avoided the release of more than 100 million tons of carbon dioxide (CO₂) in Germany in 2006—that’s equivalent to taking more than 18 million U.S. cars off of that nation’s roads. Renewable energy is available now to be rapidly scaled-up to meet the increasing demand for energy services around the world, and—in combination with energy efficiency improvements—it offers the greatest potential for short- and long-term reductions in CO₂ emissions.

The net economic benefits of renewable electricity to German consumers now amount to about 6 billion euro per year, according to the German government. In other words, the benefits of fuel-import savings, environmental and health benefits of renewable electricity, and an associated decline in wholesale electricity prices all far exceed any additional costs to consumers of producing and using renewable power.

Renewables provide a host of other benefits as well, by helping to advance rural development in industrial and developing countries alike, improving energy security, and providing cleaner air and water and improved human health.

Conclusion

The above trends and others all tell us that renewables are close to a tipping point. And their potential is absolutely enormous, particularly in combination with improvements in energy efficiency. Moreover, we can get there quickly, as experiences in Germany and other countries demonstrate.

The challenge for all of us is to convince our political leaders of the potential of renewables, and indeed our great need for renewable energy. We must work together to create the political will and strong, consistent, and long-term policies that are needed to propel renewables into the mainstream.

By 2015, concentrating solar power will be cheaper than carbon capture and storage coal-fired power. This is very important. Power plants take a long to time to plan and build. A new power plant proposed today would be lucky to get on line by 2011. Given that few new coal-fired power plants are expected in Australia until about 2015-2020, the earliest time in which still untested carbon capture and storage might be available, so called ‘clean coal’ will be priced out of the market by cheaper solar.

This is demonstrated in the graph at right below. At present, concentrating solar power costs somewhere beween A12-16c per kilowatthour. But this is falling by seven percent per year, making its downward price course quite rapid. Solar photovoltaics is also falling in price quite rapidly, but from a higher base. Given the slow-to-fall prices of carbon capture and storage as estimated by experts, solar will ‘cross over’ so-called ‘clean coal’ before ‘clean coal’ is even ready.

By 2015, CSP will be cheaper than clean coal. By 2020 it will be cheaper than nuclear

Source: ABARE, NREL

Concentrating solar power is the conservative, low cost option for Australia’s future power supplies. The coal industry acknowledges CSP is proven (unlike carbon capture and storage — see quote at left) and the costs of concentrating solar power are low. The sooner Australia invests in concentrating solar power, the sooner it can reap the benefits of low and stable energy costs and lower greenhouse gas emissions.

It all adds up to a very positive value equation, particularly given that concentrating solar power is proven and carbon capture and nuclear (ie the next generation of nuclear plants) are not. Better yet, investment is now pouring into renewable energy overseas, and overseas research has shown that solar power power investments have a much larger beneficial impact on the regional economies where they are located than fossil fuel plants (right). This means that renewable energy projects such as wind and other renewables like concentrating solar power have a positive multiplier effect on their host regions.