Shrinking renewable energy investment stirs environmental concerns

Global investment in renewable energy declined by 7 percent in 2017, its largest fall in over 15 years, according to the International Energy Agency’s World Energy Investment report released last month, stirring concerns for the world’s aspirations to cut carbon emissions.

The World Energy Investment 2018 provides a critical benchmark for decision making by governments, the energy industry, and financial institutions to set policy frameworks, implement business strategies, finance new projects, and develop new technologies.

The report says the falling cost of renewable energy sources like solar PV which has made it more affordable than ever, however the investment decline signals danger to sustainable development goals which are hinged on scaling sustainable energy sources.

As projected in the IEA Sustainable Development Scenario, new renewables generation needs to rise rapidly and global investment in renewable electricity needs to almost double to meet these goals, to nearly USD 550 billion per year by 2030.

“The decline in global investment for renewables and energy efficiency combined could threaten the expansion of clean energy needed to meet energy security, climate and clean-air goals. While we would need this investment to go up rapidly, it is disappointing to find that it might be falling this year,” says Fatih Birol, executive director, IEA.

Overall, the past year recorded some success for the sector accounting for a record two-thirds of power generation investment. In emerging markets, the average size of awarded solar PV projects in auctions rose by 4.5 times while that of onshore wind rose by half over 2013-17, helping to support economies of scale. In Europe, tendered large projects are mainly concentrated in offshore wind; auctions have generally not resulted in large, land-based renewables projects.

Capital costs fell by nearly 15 percent for solar PV and by 5 percent for onshore wind, indicating that consumers were buying more for less. While better pricing for key technologies, such as PV modules, supported these economies, there was also a shift in deployment towards regions with lower installation costs says Michael Waldron, an energy investment analyst in a commentary for IEA.

Waldron argues that these factors have supported generation-cost reductions – and in emerging economies, increased scale – for projects awarded in renewable auctions. Cheaper debt and bigger turbines have helped lower generation costs for offshore wind in Europe.

“The perceived maturity of renewables and better risk management is also facilitating more off-balance sheet financing structures, from a diversity of financial sources, beyond the United States and Europe. These trends are creating more opportunities globally.

“But data for 2017 also reveal warning signs for trends in capacity, new generation and future investment, in part due to a concentration of deployment in markets with policy uncertainty, such as China,” said Waldron.

Putting all low-carbon power generation investments together, their expected new annual output fell by 10 percent in 2017, the second straight year of decline, and did not keep pace with demand growth.

This spells a worrying trend for power sector-related CO2 emissions, which grew by 3 percent in 2017, on the back of a rise in China and India, where renewables deployment was large, but coal power filled the supply-demand gap.

This highlights the need for governments to facilitate investment, across a portfolio of technologies, in line with sustainability goals, and with capital from a diverse set of industry and financial actors, including public financial institutions. Governments also need to ensure the value of these investments, through greater system flexibility, and manage the impact on consumers according to Waldron.

ISAAC ANYAOGU