Green Shoots Hint at Recovery of Renewable Energy Investment

(MoneyWatch)  Investment in the global renewable energy industry slowed considerably in 2008 and went into a freefall in the first quarter of 2009. But a recent study by New Energy Finance reveals a few green shoots of recovery have begun to appear.

The 2009 Global Trends in Sustainable Energy Investment report, commissioned by the UN Environment Programme, found that $155 billion was invested in renewable energy companies and projects globally. That's a substantial amount, considering the investment numbers reported just a few years ago. In 2006, $93 billion was invested in sustainable energy projects.

Still, the 2008 numbers showed a molasses-type of slow down with only a 5 percent growth in new investment from 2007. The global economic crisis tightened its choke hold on new investments in the first quarter of 2009 with a 53 percent drop to $13.3 billion compared to the same period in 2008.

The second quarter shows a rebound of sorts with investment increasing by one-third over the first quarter. The question is, whether the green shoots will turn into a sustained recovery?

New investment in 2009 is expected to reach up to $115 billion, a 26 percent decrease from last year's total of $155 billion. So, clearly there is more ground to cover before hitting early 2008 levels.

Right now, the greatest hope for more investment lies with government-funded stimulus programs. Some of the largest stimulus packages are providing an estimated $183 billion to the sustainable energy industry.

In the long run, however, growth in the renewable energy sector can not place its hopes of survival in government money alone.

There was one piece of the renewable energy sector that continues to experience unrelenting growth: the global carbon market. Transaction value in the global carbon market grew 87 percent during 2008 to reach $120 billion, according to the New Energy Finance report.

The report argues that the underlying drivers of the renewable energy industry -- climate change, energy insecurity, fossil fuel depletion and new technologies -- remain and therefore a recovery is imminent. While I agree those drivers will likely aid in a recovery, I would add rising oil prices to the list. If oil prices rise -- as many predict -- the market will likely demand more clean energy products. The fear, of course, is a sudden spike in oil prices like last summer could derail a global economic recovery.

That doesn't mean all renewable energy will survive. The biodiesel and corn-based ethanol sectors face a host of problems and are struggling with bankruptcies and consolidation.

Other tidbits from the study:

• Investment in wind energy received $51.8 billion in 2008, the largest amount to go to any one technology. The investment in 2008, however, was only 1 percent higher than 2007.
• Solar energy saw a 49 percent increase in investment from 22.5 billion in 2007 to $33.5 billion 2008.
• Geothermal saw the largest spike in new investment -- up 149 percent to $2 billion in 2008 from the previous year.
• Sectors that experienced a loss in investment included efficiency, down 33 percent to $1.8 billion; biomass, down 25 percent to $7.9 billion; biofuels, down 9 percent to $16.9 billion; and marine and small hydro technology, down 5 percent to $3.2 billion in 2008.