Epicenter of Renewable Energy Investments Shifts to Developing Economies

by | Mar 30, 2011

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2010 proved a record year for green energy investments – according to a report from Bloomberg New Energy Finance, nearly US $243 billion was poured into wind farms, solar power, electric cars, and other alternative technologies worldwide, representing a 30 percent increase from 2009 and nearly five times the money invested in 2004.

A major driver of the rapid growth in investment was China – the country notched up a staggering $51.1 billion investment in clean energy projects – by far the largest figure for any country.

This milestone is aptly justified when you consider that China has emerged into the largest energy consumer in the world today. In fact, a large part of China’s and developing economies such as Brazil’s, Russia’s and India’s growth in the clean energy race is their increased demands for energy in the first place.

It is forecasted that by 2030, China will have 44 urban areas with more than 4 million residents each, while India will have 11. Brazil and Russia are not far behind, with about 91 percent and 77 percent of the countries’ respective populations living in cities by 2030.

The rapid pace of urbanization sweeping these cities is creating an urgent need to modernize and expand infrastructure. In the absence of a sustainable and eco-friendly approach to meeting future energy goals, these regions face the very real threat of an environmental crisis.  The focus on sustainable cities has, therefore, grown simultaneously. As a concept, it includes a number of fundamental objectives – minimization of the use of non-renewable resources; achievement of the sustainable use of renewable resources; and staying within the absorptive capacity of local and global waste absorption limits.

One can safely say that the growing focus on green spending is one of the main reasons for the surge in clean energy finance investments we witnessed in 2010. What’s more, with unabated growth in developing economies, China and India forecast to account for bulk of the clean energy project investments in 2020. Investors are particularly targeting China, where the opportunities are growing at the fastest pace – as evidenced by a heating up Initial Public Offering (IPO) market.

The trend disproves skeptics growing concern over the clean energy sector as a lucrative investment opportunity, given its high costs. It establishes that the rewards of investing in renewable energy far exceed the risks.

But perhaps the biggest proponent of clean energy investments is a recent report by the United Nations Environment Program that conclusively shows that investing just two per cent of global GDP into key sectors can kick-start a transition towards a low-carbon, resource-efficient economy, delivering a higher growth in GDP and GDP per capita than business as usual.

The landmark report goes on to state that a green economy can create more jobs than it loses and alleviate poverty provided conducive local government policies are in place. In fact one of the reasons China overtook the United States last year as the most attractive market for renewable energy investment was the strong government support.

While China shared the lead with the United States during the first quarter of 2010, it moved ahead as the U.S. government failed to enforce clean energy legislation. China today has over 1600 government run incubators and science parks, with a majority of them involved in cleantech projects. The country is the fourth in the world in patent origin in six clean technologies including wind, biomass and clean coal.

Without a doubt, the G-20 countries with the most robust policy frameworks (China, Germany and Brazil, for example) appear to have the strongest clean energy sectors relative to the size of their economies, while those with weaker policy frameworks (such as the United States, Australia and Japan) lag behind.

Within the emerging economies, Brazil comes second to China in terms of clean energy investments. Supported by strong energy policies, Brazil is poised for significant growth in wind energy investment, already boasting one of the world’s highest biomass and small-hydro power capacities. Moving forward, the cumulative investment potential in Brazil from 2010 to 2020 is projected as $67 billion.

India is another rising clean energy leader. While India ranked the 10th in private clean energy investments among G-20 members in 2009, over the next 10 years it is expected to rise to the third position, with annual clean energy investment under current policies forecast to grow by a whopping 369 percent between 2010 and 2020.

Whichever way you look at it, the epicenter of growth started to irrevocably shift to the developing economies and it goes without saying that it is these very economies that may lead the world in the new wave of clean energy investments.

Roland W. Chalons-Browne is President and CEO of  Siemens Financial Services GmbH; Munich. Based in Munich, he is responsible for leading Siemens Financial Services business worldwide. Roland has been CEO of Siemens Financial Services Inc. in the U.S. since October 2005. Based in Iselin, New Jersey, he was responsible for leading commercial finance and leasing business across North America. Prior to joining Siemens, Roland served as Managing Director of WestLB in the Americas from 1989 through 2004, including securitizations of future cash flows, project and structured finance deals, and transactions in natural resources.


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