Things are looking good as we head into 2015, the first year of the Sustainable Development Goals (SDGs): Economies in low and middle-income countries are growing faster than most high income nations as they step away from international aid, donor funds and government subsidies, child mortality rates and other important health markers are improving, and pollution controls are rising while air pollution – such as CO2 emissions- is decreasing.
But, according to a recent report by the United Nations Environmental Program (UNEP) and the Frankfurt School’s Collaborating Center, total investments for renewable energy peaked in 2011 at USD$279B and then shrank by 14% in 2013, in comparison to 2012.
Silver Linings Despite a Decrease in Investment
Although the decrease in renewable energy investments has been disappointing, the “Key Findings” of the Report mentions that the drop in investments has “several silver linings”. These include:
- A strong reduction in solar photovoltaic systems costs;
- 54% recovery in “clean energy share prices”;
- “Cost reductions and efficiency improvements enabled onshore wind and PV projects [to thrive]…without subsidy support”;
- Renewable Energy investments in Japan have jumped 80%.
Factors that Caused the Decrease
The global financial crisis
According to the Report, the decrease was mainly linked to the global financial crisis (2006-2012), which caused venture capital and private equity investments from renewable energy companies to drop 46% (down to $2 Billion) and corporate R&D (Research and Development) to drop 6% (down to $5 Billion).
Meanwhile, the public sector R&D increased 3% (up to $5 Billion).
High-Level disagreements on Cost
Strong public and private sector disagreements on the cost, payment, and handling of renewable energy ventures often cause private sector investors to back out from investing.
Despite unanimous support for both private and public sector investments and the development of policies that support innovative projects that help combat the effects of climate change (I.E.: emission controls, greener energy solutions), the international community is having a tough time agreeing who will be paying for these investments, as developing countries often lack the necessary financial resources to do so. For example, this sort of impasse has been the case for international working groups such as the IPCC’s working groups (Intergovernmental Panel on Climate Change) during their report released on March 31, 2014 (for more information about this issue please visit our previous blog post dated April 4 available here) .
Support for Renewable Energy Investment by International Organizations
But international organizations such as the World Bank Group, have determined that sustainable development initiatives, including those focused on renewable energy development, have a strong rate of return.
The World Bank Group has released a paper highlighting the new direction they have taken on energy investment placing a central focus on “accelerating energy efficiency and renewable energy”.
Within the Americas, the Inter-American Development Bank (IADB) is also giving its support to renewable energy projects; in fact, the region is not only the leader in the exploitation of renewable energy, but it was the only region-excluding the United States and Brazil- to report investment gains (26% or USD$12 billion) in 2013.
The Investment Decrease Might Have a Few More Up-Sides
Cost is down
The Report also finds that another factor linked to the decrease in renewable energy investments is the diminishing cost of manufacturing renewable energy systems, specifically Solar PV and wind power installations. Solar PV has decreased 53% in the last 5 years, and the cost of onshore wind turbines has decreased 15%. Luckily, wind power investments only dropped 1% (down to $80 Billion) whereas solar dropped 20% (down to $8 Billion) in 2013.
Subsidies are down
It seems that the need for renewable energy subsidies has also decreased. Indeed, at the World Bank’s 2014 Spring Meetings , Augusto de la Torre, World Bank Chief Economist for Latin America and the Caribbean and Bert Hofman, World Bank Chief Economist for East Asia and the Pacific Region, highlighted that, although the approach to economic growth in two of the world’s fasting growing economies- East Asia and Latin America- differ, many of their member countries are passing and/or about to pass the threshold of self-sufficiency without the need for subsidies.
Conclusion
Investment decreases in expanding markets usually happen when high-income nations encounter economic difficulties and governments have disagreements on the correct plan of action.
Despite these setbacks, the good news is that the energy market is still moving in the direction of renewable energies, and with an improving global economy and enough pressure on our governments from their citizens, the world will be able to transition from heavily carbon-based energy production to renewable energy production. Not reaching this goal quickly will cause an even greater rise in temperatures worldwide and severely disrupt food production and distribution.
Questions for the Reader
- How is your country increasing its share of renewable energy?
- Would you consider switching to solar panels at home to help reduce carbon emissions?
- Build a “support for renewable energy group” in your neighborhood or region and contact your local and/or national representatives. What do you have to loose? More importantly, what do we all have to gain?
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