Believe it or not, last year’s drop in renewable energy investment dollars actually underscored an encouraging trend – the falling costs of clean energy technology.
That’s because, according to a new report, although the global renewables investment level in 2016 was 23% lower than in 2015, the world added record levels of renewable energy capacity in 2016. In other words, as UN Environment says, ever-cheaper renewables offered “more bang for the buck.”
Published by UN Environment, the Frankfurt School-UNEP Collaborating Centre, and Bloomberg New Energy Finance (BNEF), the new research finds that wind, solar, biomass and waste-to-energy, geothermal, small hydro and marine sources added 138.5 GW to global power capacity in 2016, up 8% from the 127.5 GW added the year before. The added generating capacity roughly equals that of the world’s 16 largest existing power producing facilities combined, according to the report.
Investment in renewables capacity was roughly double that in fossil fuel generation; the corresponding new capacity from renewables was equivalent to 55% of all new power, the highest to date. The proportion of electricity coming from renewables excluding large hydro rose from 10.3% to 11.3%. The report says this prevented the emission of an estimated 1.7 gigatonnes of carbon dioxide.
The total investment was $241.6 billion (excluding large hydro), the lowest since 2013. The report explains this was, in large part, a result of falling costs: The average dollar capital expenditure per megawatt for solar photovoltaics and wind dropped by over 10%.
“Ever-cheaper clean tech provides a real opportunity for investors to get more for less,” says Erik Solheim, executive director of UN Environment. “This is exactly the kind of situation, where the needs of profit and people meet, that will drive the shift to a better world for all.”
According to the report, new investment in solar totaled $113.7 billion, down 34% from the record high in 2015. Solar capacity additions, however, rose to an all-time high of 75 GW. Wind made up $112.5 billion of investment globally, down 9%; wind capacity additions fell to 54 GW from the previous year’s high of 63 GW.
“The investor hunger for existing wind and solar farms is a strong signal for the world to move to renewables,” says Prof. Dr. Udo Steffens, president of the Frankfurt School of Finance & Management, commenting on record acquisition activity in the clean power sector, which rose 17 % to $110.2 billion.
While much of the drop in financing was due to reduced technology costs, the report also documents a slowdown in China, Japan and some emerging markets for a variety of reasons. Renewable energy investment in developing countries fell 30% to $117 billion, while that in developed economies dropped 14% to $125 billion. China saw investment drop 32% to $78.3 billion, breaking an 11-year rising trend.
The report says Mexico, Chile, Uruguay, South Africa and Morocco all saw falls of 60% or more, due to slower-than-expected growth in electricity demand, as well as delays to auctions and financings. Jordan was one of the few new markets to buck the trend, with investment there rising 148% to $1.2 billion.
According to the report, the U.S. saw commitments slip 10% to $46.4 billion, as developers took their time to build out projects to benefit from the five-year extension of the tax credit system. Japan slumped 56% to $14.4 billion.
“The question always used to be ‘will renewables ever be grid competitive?’” states Michael Liebreich, chairman of the advisory board at BNEF. “Well, after the dramatic cost reductions of the past few years, unsubsidized wind and solar can provide the lowest-cost new electrical power in an increasing number of countries, even in the developing world – sometimes by a factor of two.”
Liebreich adds, “It’s a whole new world: Even though investment is down, annual installations are still up; instead of having to subsidize renewables, now authorities may have to subsidize natural gas plants to help them provide grid reliability.”
The report notes recent figures from the International Energy Agency cited the switch to renewables as one of the main reasons for greenhouse-gas emissions staying flat in 2016, for the third year running, even though output in the global economy rose by 3.1%.
Investment in renewables did not drop across the board. According to the report, Europe enjoyed a 3% increase to $59.8 billion, led by the U.K. ($24 billion) and Germany ($13.2 billion). Offshore wind ($25.9 billion) dominated Europe’s investment, up 53% thanks to mega-arrays such as the 1.2 GW Hornsea project in the North Sea, estimated to cost $5.7 billion. China also invested $4.1 billion in offshore wind, its highest figure to date.
Another positive sign came in winning bids for solar and wind in auctions around the world, at tariffs that would have seemed inconceivably low a few years ago. The report says the records set last year were $29.10/MWh for solar in Chile and $30/MWh for onshore wind in Morocco.
Additional highlights of the report include the following:
- Purchases of assets such as wind farms and solar parks reached a new high, $72.7 billion.
- Corporate takeovers reached $27.6 billion, 58% more than in 2015.
- The smaller sectors had mixed fortunes in terms of new investment. Biofuels fell 37% to $2.2 billion, the lowest for at least 13 years; biomass and waste held steady at $6.8 billion and small hydro at $3.5 billion. Geothermal rallied 17% to $2.7 billion. Marine edged down 7% to $194 million.
- Siting two different technologies in the same location – to make use of shared land, grid connections and maintenance, and to reduce intermittency – is growing. Some 5.6 GW of these “hybrid” projects have been built or are under development worldwide.
The full report, titled “Global Trends in Renewable Energy Investment 2017,” is available here.