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June 03, 2009

Investments in Clean Energy Are Hampered by Financial Crisis
    by Robert Kropp

Report by the United Nations Environment Program finds that modest improvement in investment amounts in 2008 have been undermined by the financial crisis, as investors wait for effects of government policies. -- Although investment in renewable energy grew in 2008, and growth in the renewable energy sector increased in 2008 as it has every year since 2004, the effects of the global financial crisis on investment in renewable energy could be seen by the second half of 2008.

Such are the findings of a report issued by the United Nations Environment Program (UNEP). The report incorporates financial data and analysis provided by New Energy Finance, a provider of investment research in renewable energy.

The 143-page report, entitled The global financial crisis and its impact on renewable energy finance, found that in 2008, investment in the renewable energy sector increased to $155 billion, from $148 billion in 2007. However, investment in the second half of 2008 was down 17% from the first half, and down 23% from the final six months of 2007.

Furthermore, share prices in clean energy fell by 61% in 2008, a steeper fall than that registered in the overall stock market. And as an indication that the crisis continues to have its effect, investment in the first quarter of 2009 fell to $13.3 billion, the lowest amount since the first quarter of 2006.

The report analyzed the financial flows into renewable energy investment from a number of sources. It found that in every case, investment slowed dramatically by the first quarter of 2009. Most companies in the renewable energy sector, from small-scale project developers to independent power purchasers, will feel the effects of decreased investment.

While private capital investment, via venture capital and private equity investment, in early stage technology and expansion increased by 60% to $11.1 billion in 2008, the report also found that only $1.8 billion was invested by these sources in the first quarter of 2009.

Investment via public markets in clean energy companies decreased by 51% in 2008, to $11.4 billion. The 70% decrease in energy prices has led many investors to favor established businesses and to avoid companies with high capital requirements.

Investment by companies in renewable energy projects through asset financing slowed during the final quarter of 2008, as banks responded to the financial crisis by shortening periods for loan repayment.

And while the costs of commodities and shipping have decreased, lower oil and gas prices have made it harder for renewable energy sources to compete.

According to the report, only government support through stimulus packages, especially in the US, will help small and medium-sized developers.

In large part due to the anticipation of ongoing government support for renewable energy, 75% of institutional asset owners surveyed by New Energy Finance are expected to increase their investments in clean energy by 2012.

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