The new clean energy powers: Europe slides, developing nations surge
Europe was once the world's leading light in the clean energy revolution. In 2010 clean energy investment in Europe peaked at $131.7 billion — far and away the highest of any other region in the world.
But fast forward five years and there's a few new kids on the block who unceremoniously have grabbed Europe's title as the world's dominant clean energy market.
New analysis by Bloomberg New Energy Finance (BNEF) and the United Nations Environment Programme (UNEP) reveals last year clean energy investment in Europe fell 21 percent to $48.8 billion as clean tech investors set their sights on developing economies such as China, India and even South Africa.
Investments in renewable energy in developing markets rose dramatically in 2015, up 19 percent compared to 2014, reaching an investment total of $156 billion. According to the BNEF and UNEP researchers, this is the first time emerging economies have overtaken developed nations in terms of clean energy investment.
So has the world reached a tipping point? Are all eyes now on developing nations? Angus McCrone, chief editor at BNEF, told BusinessGreen lower investment in Europe is likely to become a new normal for the green energy sector.
"The investment level in Europe is probably moving down to a lower plane than it was a few years ago," he said, pointing out that despite record levels of investment in offshore wind, led by U.K. projects, continuing policy uncertainty across the continent is likely to deter investors who will look abroad for a safer haven for their cash.
Boom and bust
In recent years, Europe has endured something of a boom and bust cycle for renewable energy. The BNEF report refers to the fading of the "solar boom" enjoyed by rooftop developers in Italy and Germany in 2011 and the uncertainty caused by retroactive subsidy changes in Spain, Romania and several other countries.
Even strong investment in the U.K. offshore wind industry — which had a "bumper year" with $10.5 billion of capital spending commitments in 2015, according to the report — was not enough to offset the investment slump in other clean energy sectors and European countries.
The U.S. was not caught by the same downturn, delivering a 19 percent uplift in investment compared to 2014 as developers raced to install new capacity before the main federal tax credits for clean energy were slated to expire at the end of the year. The multi-year extension to the tax breaks, agreed to in December, is expected to drive continued high levels of investment over the next few years, according to McCrone.
"The U.S. investment got a lot of encouragement at the end of last year with the extension for the main tax credits for wind and solar, so we may see some reasonably strong figures from the U.S. in the next few years," he said.
This is the first time emerging economies have overtaken developed nations in terms of clean energy investment.
However, he stressed developing economies are really set to take the lead in clean energy investment. China saw investment climb 17 percent last year to $102.9 billion, while in South Africa investment jumped a staggering 329 percent to $4.5 billion.
In India, meanwhile, renewables investment rose 22 percent to $10.2 billion — an impressive sum, but it will need to do more in the coming years to meet its ambitious clean energy targets, McCrone said.
"2016 could be a bigger year for India — certainly they have very ambitious targets and in order to hit those targets they are going to have to raise investment significantly above where it was in 2015," he said.
Some detractors may argue the travails of the European clean energy sector provides evidence of a market in crisis.
But the report reveals how overall 2015 was a record-breaking year for global investment in the clean energy sector, with the amount of money committed to renewables excluding large hydro-electric projects hitting $285.9 billion and breaking the 2011 record of $278.5 billion. The performance is especially impressive given the dramatic fall in costs for clean energy technologies in recent years, McCrone pointed out.
And there are more signs that the energy industry's investment mix is tilting away from fossil fuels, with spending on new coal and gas-fired generation attracting less than half as much capacity investment as renewables last year.
Even the recent falls in commodity prices have not been enough to draw investors back towards fossil fuel infrastructure as fears over stranded assets grow. The report suggests that "new coal-fired plants may be more difficult to finance than those of cleaner technologies, given rising investor concern about exposure to stranded assets and the climate priorities of development banks."
However, the BNEF and UNEP researchers do warn of some challenges ahead to the renewables sector. Despite the global commitments made through the Paris Agreement, it suggests global emissions are still rising (although the most recent IEA data suggests global emissions remained flat in 2015 for the third year running).
Meanwhile, as investor focus shifts to developing countries, more barriers may emerge in the form of national electricity monopolies, which may be less familiar with emerging clean technologies and more resistant to cleaner forms of generation such as wind and solar. In addition, the huge interest in energy storage is not yet translating into investment dollars, according to McCrone, and concerns over intermittency and grid balancing still abound.
In some ways, clean energy enthusiasts may feel somewhat cheered by the shift of focus away from Europe. No longer can renewable opponents claim clean energy is only affordable for rich European nations when the likes of China, Mexico and India roll out green energy as fast as factories can manufacture the necessary components.
Today's report may have dented the pride of Europeans and raised serious questions about the impact of policy instability in member states, but it also underscores the massive sea change in energy markets taking place across huge swathes of the global economy.
Given the huge scale of their renewable energy ambitions, perhaps it is only right that developing economies take the driving seat. And perhaps it is also time for European policymakers to reflect on whether they want to give up their former market-leading position quite so easily, especially when clean energy costs keep falling and climate and air pollution risks keep climbing.
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