Clean Energy Gave More Capacity With Less Investment, IEA Says

  • Wind and solar drawing more capital than fossil fuels
  • Solar costs have plunged 60 percent on average since 2010

Renewables provided more bang for the buck last year because the cost of installations and financing declined, helping reshape the direction of the energy industry for decades to come, the International Energy Agency said.

The capacity of new renewable-energy installations coming online surged 40 percent in five years even though investment in those technologies slid 2 percent to $288 billion, the Paris-based institution said in a report released on Wednesday.

The findings indicate the world is shifting slowly toward less-polluting forms of energy, helping policymakers develop in the poorest areas while limiting greenhouse-gas emissions blamed for global warming. While investment in fossil fuels fell, reflecting a drop in oil, natural gas and coal prices, it’s improving technology that was responsible for the decline in renewables.

“The critical importance of energy investment to global prosperity will grow as countries look for ways to meet their climate goals and hundreds of millions of people gain access to modern energy services,” said Fatih Birol, executive director of the IEA. “The ability to mobilize investment is ultimately the key determinant of the success or failure of an energy policy.”

Source: International Energy Agency

Money flowing into the energy industry as a whole fell by 8 percent last year, dragged down by collapsing investment in oil and gas exploration. Investment in electricity rose by 4 percent to $682 billion. 

Renewables took 70 percent of expenditures in generation in 2015, attracting more than 2 1/2 times more than fossil fuels such as oil and coal. New nuclear reached the highest level in over two decades, adding 10 gigawatts at a cost of $21 billion.

Lower-cost renewables is making more projects worth developing, though there’s big variations worldwide. Solar and wind costs in China were about 15 percent cheaper than the global average because so much of the industry’s manufacturing capacity is based there. In the U.S., utility-scale solar costs were almost 35 percent higher than the average because of the expense associated with permitting and engineering.

Source: International Energy Agency

Finance is driving the shift with more diverse sources of funding. Project finance loans surpassed company balance sheets as the biggest source of capital for renewables last year, the IEA data show.

“This trend towards project finance partly reflects the constrained cash flows of a relatively new industry, with limited earnings from an already operating asset base,” the organization’s report said. “It is also because projects that are largely based on regulated cash flows are better able to increase leverage and tap into larger pools of bank financing.”

Source: International Energy Agency

On the equity side, more investors are being drawn in by the promise of steady long-term payments from electricity sales over the lifetime of renewable assets, matching the liabilities that pension funds have. Project bonds have also gained traction, as did green bond issuance, which reached a record at $48 billion in 2015, the IEA said. 

China sold its first green bonds last year, and institutions have raised $8 billion there so far this year.

Source: International Energy Agency

Solar developers in the U.S. and Africa have securitized rooftop panel systems, issuing asset-backed bonds with coupon payments linked to cash flows from monthly payments.

Companies outside the energy business also are pouring money into renewables. The IEA counted at least 23 of them including Apple Inc. and Facebook Inc. that have signed contracts to buy clean power in North America in 2015.

Source: International Energy Agency

Investment in energy storage rose to $10 billion in 2015, up from about $8.5 billion the year before. Pumped hydro accounts for 97 percent of all storage capacity worldwide, with compressed air, power to gas and batteries making up the rest. Grid-scale battery investment has grown 10-fold since 2010 and hit $1 billion last year.

Source: International Energy Agency
Before it's here, it's on the Bloomberg Terminal. LEARN MORE