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44% plunge in investment as crisis catches up with clean energy

The latest figures from research firm New Energy Finance show that new investment in clean energy has collapsed to just US$13.3bn in the first quarter of 2009, down by no less than 44% on the fourth quarter of last year and 53% below the level achieved in the first quarter of 2008.

According to sources at New Energy Finance, it took until the first quarter of 2009 for the credit crunch and the recession to finally catch up fully with investment in renewable energy, low-carbon technologies and energy efficiency.

Despite the sector’s medium-term and long-term growth prospects, it suffered in Q1 2009 from a severe shortage of bank finance for projects and the parlous state of overall stock market confidence. Over US$150bn of stimulus spending around the world has been earmarked for clean energy, but these figures show it has not started to flow fast enough to fill the current funding gap.

The unprecedented fall in recorded investment in Q1 2009 reflects two influences. The first, and more significant, is a sharp drop in underlying activity. The second is the fact that many deals are taking longer than usual to complete because of the state of financial markets, and had therefore not been closed by the last day of the quarter.

  • The biggest single element in clean energy investment is asset finance of new-build projects such as wind farms, solar parks and biofuel plants. This amounted to just under US$11.5bn in the first three months of 2009, down 44% from Q4 2008 and half the figure for Q1 last year;
  • Venture capital and private equity finance for clean energy companies held up well last year, as funds put equity into expanding technology companies, some of which might have floated in a healthier year for the stock market. However in the first quarter of 2009, VC/PE fell 22% compared with Q4 2008 to US$1.8bn, its lowest in any quarter for more than two years;
  • The weakest segment of all was public market investment. Stock market investors contributed less than US$100m to pure-play clean energy companies in Q1 2009, although a number of other firms with a mixture of activities, some in clean energy and some not, did succeed in raising equity finance. Even in 2008’s bear market, no quarter was as bleak as this for public market investment – Q4 2008 saw US$1.1bn raised for instance, and Q1 2008 saw US$2.1bn raised;
  • Merger, acquisition, buy-out and refinancing activity, which is not included in the new investment total because it represents assets and equity changing hands rather than fresh capital coming into the sector, was US$8.8bn in Q1 2009, compared to US$17.3bn in Q4 2008 and US$18.8bn in Q1 2008. The number of corporate M&A deals is likely to increase during the year as well-capitalised players take advantage of rivals that find themselves unable to raise new finance.

Michael Liebreich, chairman and CEO of New Energy Finance, commented, “green stimulus plans may represent the light at the end of the tunnel for clean energy companies, but meanwhile the sector has been hit by an oncoming train. These figures highlight the need for policy-makers and administrators in the US and elsewhere to ensure that stimulus funds start flowing immediately, not in a year or so. There is also a strong case for further measures, such as requiring state-supported banks to raise lending to the sector, providing capital gains tax exemptions on investments in clean technology, creating a framework for Green Bonds and so on, all targeted at getting investment flowing. Many of the policies to achieve growth over the medium term are already in place, including feed-in tariff regimes, mandatory renewable energy targets and tax incentives. There is far too much emphasis among policy-makers on support mechanisms, and not enough on the urgent needs of investors right now.”

Looking at the detailed geographical data, asset finance of new-build renewable energy projects in the US totalled just US$500m, compared to US$2bn in Q4 2008 and just over US$5bn in Q1 2008. The Obama stimulus funds have not yet started to flow. These figures show just how much they are needed.

In Brazil, new-build asset finance was down sharply in Q1 2009 at US$900m, compared to US$3.3bn in Q4 2008. But refinancing shot up to US$1.4bn, more than half of the world total, from virtually nothing in Q4 – showing how state-owned banks are moving to fill the financing gap left by private sector banks, particularly in the ethanol sector. This may provide a pointer to the rest of the world on what can be achieved by the public sector if there is political will.

Overall global investment in clean energy reached US$155bn in 2008, up slightly from US$148bn in 2007, according to New Energy Finance data. Given the slowness of the first quarter of 2009, it will take a very sharp acceleration in investment in the remaining three quarters for this year to match 2008 levels.

Liebreich said: “The medium-term and long-term outlook for clean energy is strong, given the imperatives for G20 economies to curb carbon emissions and improve energy security. We forecast that on current policies, annual investment in the sector will return to growth in due course and reach US$350bn by 2020 – although as we showed in our recent Global Futures work, even that is not sufficient to achieve a peak in carbon dioxide emissions before 2020. Right now, however, the industry has to get through some very difficult quarters until the stimulus funds start to flow. Only then can we focus again on the longer term challenges.”

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