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July 08, 2008

Renewable Energy Wows World Investors
    by Anne Moore Odell

The United Nations Environmental Program reports a new record in sustainable energy investments in 2007 with more than $148 billion invested globally. -- Investments in the wind sector lead the way in the rapidly expanding renewable energy industry. 2007 saw a 60% increase over 2006 in sustainable energy investments, according to the United Nations Environmental Program's (UNEP) report "Global Trend in Sustainable Energy Investment 2008."

SRI Mutual Funds GuideInvestment in new renewable energy capacity, otherwise known as asset finance, is a major reason for the huge growth in investments, with $84.5 billion invested in 2007 alone. Public market investments in renewable energy doubled between 2006 and 2007 with $23.4 billion outlaid. Adding together all new monies invested in renewable energy, the UNEP counts more than $148 billion.

The report was written, in part, to help government policy makers and strategic investment makers get the "big picture" on renewable energy investments. Eric Usher, head of the Renewable Energy Finance Unit, UNEP, and one of co-authors of the report told, "For example, if you are a bank, there is a lot of information in report to help you decide if you should move into the renewable sector and helps with strategic focus. On the governmental side, the report can help policy makers understand what all the different dollar amounts mean."

Although sustainable energy currently represents only 5.4% of the world's energy supply, almost a quarter (23%) of new power generation capacity added in 2007 was sustainable. Investments in sustainable energy grew across all sectors, including wind, solar, and biomass. Investors are also supporting the development of new technologies including energy efficiency.

"New renewable energy is so dynamic," said Usher. "One of the interesting parts of renewable investments is that are five to ten renewable technologies that aren't competing with each other and that creates diversified basket to invest in. Wind and solar don't compete with each other, and biofuel is used for transportation,"

The credit crisis that affected public markets in the first quarter of 2008 was felt by the renewable market, with fewer IPOs and stock prices down 17.9%, according to the report. Yet the second quarter of 2008 has seen the renewable markets bounce back above the first half of last year.

The report states, "Although asset finance is down somewhat, VC/PE investment, public market capital raising and stock prices are all healthy, indicating that the finance community still sees strong fundamentals underlying the sector and is increasingly looking to take part in its future growth."

Developing nations, specifically China, Brazil and India, are seeing a huge growth in renewable investments. These three markets have seen Asian governments investing heavily in research and development of clean energy and energy efficiency.

Corporate mergers and acquisitions also saw an increase in activity of 52% in 2007 with $25.7 billion moving within the industry. Following the trends in the wind sector, UNEP notes "wind assets are gradually being transferred from developers to utilities."

People investing in the beginning stages of new renewable energies are betting on huge growth potential with the UNEP reporting early-stage VC growth of 112% in 2007 to $2 billion. The solar sector had the largest amount of VC investments at $3.7 billion. However, biomass and the conversion of waste into energy saw an amazing growth of 432% in VC.

Venture capital is moving downstream with renewables, specifically solar, as investors are financing projects on the ground. Usher pointed to the multitude of technologies at the different stages of development as a particular strength of the renewable energy industry. In that same vein, Usher suggested if the world's energy equation is going to be restructured, investors and governments shouldn't try to pick one new technology to solve all energy needs.

Public equity funds that focus on clean energy were launched in record amounts last year with 17 funds started in 2007. Only five funds were launched two years ago. UNEP notes that more than $30 billion is invested in clean energy funds. This is on top of $26.4 billion invested in environmental funds and $10.9 billion in funds focusing on renewable power.

Usher believes that development of new funds focusing on clean energy could result in more sustainable energy products: "The arrival of these heavyweight fund managers to the sector is likely to encourage the larger publicly listed companies they normally invest in to expand into sustainable energy and other low carbon sectors."

Renewable energy is both a mainstream investment and a mainstream energy source, reports Usher. Since starting in 2004, renewable energy companies have made strong showings in stock markets and with more institutional investors, and investment banks have started to invest with renewable companies.

"Before, investors thought about renewables as technologies for the future," said Usher. "All of the a sudden around 2004, these companies started to make strong revenue streams, and investors started saying they are like any other industrial sector of today."

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