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Global Landscape of RenewableEnergy Finance 2020

Main conclusion

Investment in renewable energy reached US$322 billion in 2018 and is expected to continue to grow moderately in 2019. However, for the world to achieve the internationally agreed climate goals, the pace must be greatly accelerated. In order to ensure a climate-safe future, by 2050, annual investment in renewable energy—including various types of power generation, solar thermal, and biofuels—must nearly triple to US$800 billion.

With the outbreak of the new crown pneumonia, renewable energy investment in the first half of 2020 fell by 34% compared with the same period last year.

Five-year trend of renewable energy investment (2013-2018)

Although investment in 2018 has declined due to low technology costs, the total installed capacity of renewable energy continues to grow.

From 2013 to 2018, solar photovoltaic and onshore wind power technologies consolidated their dominance, attracting 46% and 29% of global renewable energy investment in five years, respectively.

Solar thermal power investment (6%), including concentrated solar power (CSP) and solar heating systems, has gradually slowed down. They have fallen behind offshore wind power (7%), which has accounted for the third largest share of renewable energy investment since 2014. During this period, hydropower investment accounted for 4% of the total investment, while other renewable energy investment only accounted for 3%.

Sources of funds

The private sector remains the main provider of renewable energy funding, accounting for 86% of investment in this field between 2013 and 2018. Project developers provided 46% of private funds, followed by commercial financial institutions with 22%.

Project-level equity was initially the most widely used financial instrument, related to 35% of renewable energy investments in 2013-2016. Since 2017, it has been replaced by project-level conventional debt, which reached 32% in 2017-2018.

From 2013 to 2018, public finance accounted for 14% of total renewable energy investment, mainly funded by development financing institutions. Although public financing resources are limited, they can play a key role in reducing risks, overcoming initial obstacles, attracting private investors, and maturing new markets.

Regional distribution

East Asia and the Pacific attracted the most renewable energy investment, accounting for 32% of global renewable energy investment commitments from 2013 to 2018, mainly driven by China. OECD countries in Western Europe and the Americas (including Canada, Chile, Mexico, and the United States) followed closely behind, accounting for 19% and 18% of global renewable energy investment, respectively.

Regions dominated by developing countries and emerging economies are still under-represented. From 2013 to 2018, they only attracted 15% of the total global share, mainly in Latin America and the Caribbean (5%), South Asia (4%) and the Middle East And North Africa (2%).

Off-grid renewable energy financing

In 2019, the annual funding commitments for off-grid renewable energy reached US$460 million, up from US$429 million in the previous year, an estimated US$21 million in 2013, and the known global US$250,000 in 2007. However, even now, off-grid renewable energy still accounts for only 1% of the total financing of energy access expansion projects.

Private investors provided most of the financial support for off-grid renewable energy, accounting for 67% in the past 13 years (2007-2019). Private equity, venture capital and infrastructure funds contributed the most, accounting for 35% of the total. Except for private foundations, institutional investors have been relatively inactive in the field of off-grid renewable energy.

Development financial institutions are the largest providers of public capital, accounting for 67% of public investment in the same period. On the contrary, the role of government agencies and intergovernmental agencies has declined significantly, from 21% of total investment in 2013 to 2% in 2018, and further to 1% in 2019. Compared with the overall situation of energy acquisition projects, off-grid renewable energy tends to be financed more through equity and less through debt instruments.

From 2007 to 2019, sub-Saharan African countries attracted 65% of global off-grid renewable energy investment, especially in East Africa. Most of them are used in non-grid renewable energy houses.

Executive Summary

From 2013 to 2018, significant progress has been made in global renewable energy investment, with a gradual investment of US$1.8 trillion. The reduction in installation costs due to technological improvements and procurement mechanisms adapting to changing market conditions has proven to be an effective catalyst for increasing investment and building additional capabilities.

The second edition of "Global Renewable Energy Finance Prospects" lists the main global investment trends from 2013 to 2018 by region and industry, replacing the role of different financial instruments, and discussing the main differences between private and public actors . Although surprisingly encouraging at first glance, the data shows that the international community has a long way to go to achieve the level of investment required to achieve international climate and development goals.

The analysis is only an uneven picture of renewable energy financing, which is heavily biased towards the private sector operating in a few key countries. Although renewable energy investment in China, the United States and Western Europe remains stable, Latin America and the Caribbean, South Asia and Sub-Saharan Africa still account for a low proportion of current global renewable energy investment.

This report also focuses for the first time on the financial commitments to off-grid renewable energy technologies, which provide a convincing and cost-effective answer to the challenge of ensuring universal access to sustainable energy, especially for people and businesses in rural areas. . An in-depth analysis of off-grid renewable energy investment provides a unique perspective on the increasingly important role of renewable energy in the field of energy acquisition.

After the outbreak of the new coronavirus, renewable energy investment in the first half of 2020 fell by 34% compared with the same period in 2019. Looking ahead, the impact of the global crisis on the energy and financial sectors may undermine investment in renewable energy, which will inevitably lead to the progress of global energy conversion. However, the current pandemic seems to increase investor interest in more sustainable assets such as renewable energy. , Because of the conversion with traditional assets, renewable energy has been proven to be resilient to the volatility caused by the new crown pneumonia crisis. By including renewable energy at the core of its green stimulus plan, the government can signal a long-term public commitment to the industry, increase investor confidence, and attract more private capital into the industry.

Emerging trends and global overview

Renewable energy investment continued to grow steadily from the 2013 level, reaching a peak of US$351 billion in 2017, and falling to US$322 billion in 2018. The slowdown in global investment levels obscures the fact that the cost of technology has fallen, so that every dollar invested will generate more power generation capacity. Coupled with the favorable investment in previous years, the installed capacity of renewable energy power generation increased by the end of 2018, and the installed capacity of solar photovoltaic (PV) and wind energy (onshore and offshore) increased by 149 billion watts, an increase of 6% over 2017.

Increased economies of scale, production and technology improvements, more intense competition in the supply chain, support for research and development, and direct deployment strategies (for example, auctions and feed-in tariffs), support the absorption of renewable energy and increase maturity to remove costs Electricity was reduced by 12%, solar photovoltaic was 14%, and onshore wind power was between 2017 and 2018.

Although the trend of investment, increase in production capacity and removal of costs all suggest encouraging progress in the field of renewable energy, investment in renewable energy has still not reached the need to put the world on a pathway compatible with keeping the global temperature rise below 2°C and towards 1.5°C in this century. Annual investment in renewable energy needs to increase nearly threefold, from an average of slightly less than US$300 billion in 2013-2018 to nearly US$800 billion in 2050. It will require further investment in system integration technologies, such as distributed energy, batteries and energy storage, in order to be able to integrate the newly added capabilities into the energy system.

Although expanding investment in renewable energy is necessary, it is not enough by itself. While expanding investment in renewable energy, investment in fossil fuels must be drastically reduced and reorientated. Although the power sector's investment in renewable energy exceeds that of fossil fuels, the overall investment in fossil fuels (including infrastructure investment) far exceeds that of renewable energy. In 2018, renewable energy investment was US$322 billion, mainly in the power sector, while the fossil fuel sector invested US$933 billion, of which US$127 billion was used for power generation.

Investment technology

In 2017 and 2018, solar photovoltaic and onshore wind power consolidated their dominance in the renewable energy market, accounting for an average of 77% of total renewable energy financing commitments (Figure 1). The highly modular nature of these technologies, short project development cycles, increasing competitiveness driven by technological and manufacturing improvements, and appropriate policies and measures, explain the huge share of these technologies in global renewable energy investment Played an important role.

From 2013 to 2018, global offshore wind power investment attracted an average of US$21 billion annually, accounting for 8% of the newly installed renewable energy capacity in 2018. According to the IRENA report, offshore wind energy has huge growth potential and will play a key role in achieving deployment levels that support the decarbonization growth trajectory.

Investment area

East Asia and the Pacific attracted an average of 32% of global renewable energy financial commitments in 2017-2018, reaching US$125 billion in 2017. This is mainly due to increased spending on solar photovoltaics and onshore and offshore wind energy in China, which represents an average of 93% of renewable energy investment in the region between 2013 and 2018.

The continuous growth of US investment has greatly promoted investment in the member states of the Organization for Economic Cooperation and Development of the Americas (OECD). Together, these countries constitute the second largest destination promised in 2017-2018, attracting 22% of global renewable energy investment, reaching a peak of US$82 billion in 2018.

Western Europe continues to be one of the main destinations for renewable energy investment, receiving an average of US$51 billion in 2017-2018, accounting for 15% of total investment in this field. In contrast, OECD countries’ investment in Asia fell by 53% in 2017-2018, compared with 2015-2016 levels, partly due to the decline in solar photovoltaic investment in Japan.

Between 2013 and 2018, countries in Central Asia, Eastern Europe, Latin America and the Caribbean, Middle East and North Africa, South Asia and Sub-Saharan Africa attracted only 15% of total renewable energy investment, or US$45 billion.

Financial tool

Renewable energy project financing mainly comes from project-level conventional (ie non-concessional) debt, which reached a peak of US$119 billion in 2017, accounting for an average of 32% of total investment in 2017-2018

Balance sheet financing, including equity and debt, also supports considerable investments, which accounted for an average of 27% (54%) of the total commitments in 2017-2018. Balance sheet financing is used almost exclusively to fund the development of solar photovoltaic and onshore wind power, while project-level conventional debt is used for a wider range of technologies, including offshore wind power.

Green bonds have the potential to channel large amounts of funds into the renewable energy sector. In recent years, the annual issuance of green bonds dedicated to renewable energy has grown rapidly, from US$2 billion in 2013 to US$38 billion in 2019. Green bonds are usually used to refinance existing assets. Because of their large face size, they can attract institutional investors.

Public and private finance

Between 2013 and 2018, an average of 86% of total investment in renewable energy projects came from private financing, which is equivalent to an annual commitment of US$257 billion. During the same period, the average annual public finance reached 44 billion US dollars.

From 2013 to 2018, project developers were still the main participants in private financing, accounting for an average of 56% of the total private financing in 2017-2018, mainly through balance sheet financing, or debt or equity financing (Figure 2).

Commercial banks and investment banks accounted for an average of 25% of the total private financing in 2017-2018, and they usually provide non-concessional debt to mature technologies such as solar photovoltaic, onshore wind power, and offshore wind power. From 2017 to 2018, the average direct investment of institutional investors (including pension plans, insurance companies, sovereign wealth funds, endowments and foundations) in new renewable energy projects accounted for only 2% of private direct investment.

In recent years, the role of non-energy production companies in the field of renewable energy has attracted people’s attention. From 2017 to 2018, non-energy production companies accounted for an average of 6% of private financing. Non-energy production companies’ renewable energy investments are mainly motivated by the increasing price competitiveness of renewable energy technologies, long-term price stability and supply security, as well as the cost-saving potential of social and environmental considerations. Corporate actors play an important role in the decarbonization of the energy sector because they account for two thirds of the world's energy consumption.

From 2013 to 2018, public finance accounted for an average of 14% of total investment, and reached its peak in 2017, accounting for 19%, due to a surge in investment by national development financial institutions in China, Colombia, Mexico, and Turkey. Countries, bilateral and multilateral developing countries have always provided most of the public investment, with an average annual commitment of 37 billion US dollars from 2013 to 2018. In 2017-2018, governments of various countries directly provided 9% of public finances on average, higher than the 5% in 2015-2016, most of which were directly provided to solar photovoltaic and onshore wind power projects.

Public finances can play a key role in funding technologies and regions that still need additional support to reduce the cost of capital, for example by providing risk mitigation tools. The public sector can also reduce technology costs by demonstrating the commercial potential of difficult-to-access industries and markets, such as off-grid renewable energy in rural areas.

Off-grid renewable energy investment trends

At present, the world is not yet on the track of achieving universal energy access by 2030. As of 2018, about 789 million people have no electricity supply. According to current and planned policies, it is estimated that nearly 620 million people will still be in this situation by 2030. Decentralized renewable energy is a cost-effective solution to achieve electrification, especially in rural areas where grid expansion may not be feasible.

Between 2007 and 2019, off-grid renewable energy has attracted a total of approximately US$2 billion in investment, of which US$734 million has been invested in countries with insufficient energy supply. These countries account for 80% of the world’s population and lack sufficient energy supply.

The annual fiscal commitment to decentralized renewable energy increased from US$250,000 in 2007 to US$460 million in 2019. Despite this growth, investment in off-grid renewable energy solutions still accounts for only a small portion of total energy access financing—less than 1% of total energy access investment in access deficit countries.

Recommendations and conclusions

The goal of the International Climate Conference, Paris, as set by the agreement, needs to accelerate the conversion of the global energy system, including not only renewable energy, but also renewable energy system integration and supporting technologies, energy-saving measures, and increased electrification for a wide range of uses (e.g., heating and transportation) ) And capabilities based on renewable energy. Most importantly, this will require a gradual reduction in investment in fossil fuels.

The joint efforts of various stakeholders, including policymakers, capital market participants, issuers and investors, are needed to shift investment from fossil fuels to all existing sources of capital in the renewable energy industry.

1. Use public finances to squeeze in private capital

In recent years, the private sector has dominated renewable energy investment and may fill most of the financing gap. Nevertheless, limited public resources are the key to closing the gap. Public finances should be used strategically in order to attract more private capital, especially in more difficult sectors and regions. For example, this can be achieved through capacity building, support for pilot projects and innovative financing tools, hybrid financing initiatives, and provision of risk mitigation tools (such as guarantees, currency hedging tools, and liquidity reserve tools).

2. Mobilize institutions to invest in renewable energy

Institutional investors manage approximately $87 trillion in assets and play a key role in reaching the level of investment required for the current global energy transition. Greater participation of institutional capital will require effective policies and regulations, capital market solutions (such as green bonds) that meet the needs of this investor class, and a combination of various internal changes and capacity building for institutional investors.

3. Promote more renewable energy use of green bonds

Green bonds can help attract institutional investors and introduce a large amount of additional private capital in the renewable energy sector to make up for the huge outstanding investment gap. Recommended actions for policymakers and public finance providers to further increase the issuance of green bonds, including the adoption of green bonds in compliance with international climate goals, provide technical assistance and economic incentives for the development of the green bond market, and create a large number of project pipelines.

4. Strengthen corporate participation

Although companies that produce renewable energy have provided substantial investment in this sector, non-energy production companies can play a prominent role in the energy transition by promoting demand for renewable energy. By establishing the right authorization framework, policymakers can encourage companies to actively seek resources and release additional capital in this area. Suggested actions include, for example, establishing a transparent renewable energy attribute certificate certification and tracking system, allowing third-party sales between companies and independent power generators, and creating incentives for utility companies to provide companies with green procurement options.

5. Expand financing of off-grid renewable energy

To achieve universal access to modern energy by 2030, an annual investment of US$45 billion will be required. For off-grid renewable energy projects, the lack of affordable financing remains one of the biggest challenges, which is upstream for project developers and downstream for energy users. Therefore, new financing methods (such as outcome-based financing) and tools (standardization and aggregation of project documents) need to be adopted to ensure better access to funds and reach the scale of investment required to achieve universal energy access by 2030.

-This article is an excerpt from the report Global Landscape of Renewable Energy Finance 2020 just released by IRENA in November 2020