THEWORLDTODAY.ORG NOVEMBER 2007
KIRSTY HAMILTON is an Associate Fellow of the Energy, Environment and Development Programme at Chatham House. She runs The Renewable Energy Finance-Policy Project. A conference on Scaling up Renewables is being held at Chatham House on November 19 and 20: email@example.com
the figure mounts to just over $100 billion. Latest estimates for this year show a further twenty-five percent increase in investment to $94.5 billion. The line up of financial institutions involved is impressive. Many are household names – from the Royal Bank of Scotland to ABN AMRO – others are less visible on the High Street, but significant leading actors such as Fortis and Royal Bank of Canada, as well as major investment banks like Credit Suisse and Goldman Sachs. YES bank from India also figures. Other institutions such as London-based Climate Change Capital, reflect a new breed of specialist financial institutions emerging to engage in renewable energy, carbon finance and other activities linked to reductions in international greenhouse gases.
GENERATING INTEREST Are the investors onto something, or is it rather small beer in the world of very large financial flows, with the big money going on oil and gas, and coal? Liebreich says that clean energy now accounts for nine percent of total energy investment; other estimates show eighteen percent going into the power sector. Furthermore, strong investment in new technology and manufacturing is in stark contrast to expeditures on, for example, research and development in the conventional energy sector. This will feed through into projects on the ground in future. Sustainable energy now accounts for a significantly larger share of generation investment than of installed capacity. Put simply, if you look at the level of renewable energy generation installed today, you might say it provides not more than two percent of total world energy, depending what you are counting, but this reflects past commitment. The level of investment being made today is considerably larger, so looking ahead it will help reshape the overall energy infrastructure in the coming decade. As the head of UNEP Achim Steiner states in the foreword to the report: ‘This is full-scale economic development, not just a tweaking of the energy system.’ Nor is this a western European-North America phenomenon: while such blocs take the lead in overall investment, nations like China with strongly growing energy demand are keenly interested in exploiting home grown renewables, as well as energy efficiency, and have ambitious goals. Already, both China and India have companies among the top ten global wind manufacturers. For example, India’s Suzlon, targeted and took over the German wind group, Repower this year. China’s solar industry has been very successfully raising money on the New York Stock Exchange. This corporate success has stemmed, in part, from clear national policy backing for renewable energy. Abu Dhabi describes itself as the first major hydrocarbonproducing nation to embrace renewable and sustainable energy technologies. A top tier oil exporter, it is backing the ambitious Masdar clean energy initiative, with the launch last year of a $250 million fund. A zero-waste, zero
carbon, hundred percent renewable energy city, is to be designed by British architect Lord Foster. Using its sugar industry, Brazil has developed a strong bioethanol sector over the last two to three decades, now with significant export demand. Indeed, much of the public debate about biofuels reflects the growth and scale this sector is experiencing, raising important sustainability issues, as well as other trade factors.
POLICY AND POLITICS The International Energy Agency estimates the need for more than $20 trillion in energy investment, up to 2030. This has stimulated much discussion about how to redirect investment towards non-climate damaging technologies: wind turbines, solar electricity and heating, small-scale water power and modern forms of biomass for power or fuel. The investment statistics indicate that the constraint to scaling-up clean energy is not a lack of commercial interest from investors and financiers, but the mix of policy and politics that provide the right conditions for mobilising that investment. Policy clarity will also help iron out bottle necks such as shortages of wind turbines or their components. Imagination may also be an important factor in looking ahead. Three to four year’s ago few mainstream commentators predicted the confluence of factors – high oil prices, the phenomenal rise of China and its energy demand, and the recognition of climate change, and potential carbon liability – as the driving force of new energy developments.
LOUD, LONG AND LEGAL Why is policy support needed if investors are already pumping money into the sector? Part of the answer is that the growth has occurred in countries with supportive policy environments that have enabled a good commercial case to be made for investment. A level playing field with conventional fuels is still needed: renewable energy often demands more money up front, but with low or zero fuel costs, in the case of wind. Some new technologies are still expensive, which make them less competitive in markets designed for conventional energy. Financiers have described the characteristics of a favourable policy environment as ‘loud, long and legal’. This is shorthand for policy that needs to be loud enough to change the bottom line and create commercially attractive deals; sufficiently long to deal with ten to fifteen year project lifetimes, and legal to instil confidence that policy will not bend in the winds of political change. The December meetings of the European Commission on its climate package – including the twenty percent renewables target – and the Kyoto treaty process, will be crucibles for the political debate over whether nations can substantially decarbonise their energy economies and the pathway to economic development. Undoubtedly cost will be a focus. But on the upside, the investment community appears ahead of government in seeking out opportunities.
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