Continued Growth Expected in Clean Energy Despite Investment Slump in 2016

Bloomberg New Energy Finance (BNEF) has released its take on the clean energy market, detailing what happened last year and what’s likely to happen in 2017 and beyond. We’ve summarized some of BNEF’s key findings and included our analysis here.

The Bain Takeaways:

- New investment in clean energy fell by 18% globally in 2016, to $288 billion, after a record $349 billion in 2015. It was the largest yearly percentage drop since 2004.
- Asset financing of utility-scale renewable energy projects represents 65% of BNEF’s figures. Those totals were down 21% versus 2015.
- Despite the overall drop. the number of new clean energy projects increased by 2.4% while overall capacity was up 6%
- Worldwide, 73 GW of solar and 56.5 GW of wind were added last year.
- Wind and solar projects represented 79% of total 2016 investments.
- US clean energy investment dropped by 7% to $73B, APAC was down 31% to $135B, and EMEA dropped 2% to $80B.

The Main Causes for Decline:

- A sharp drop in clean energy equipment prices last year — notably 10% cost decline for wind and solar — attributed about half of the drop.
- BNEF also reports a major drop in large-scale project investment in China (down 26%) and Japan (down 43%) as they digest projects already built. (However, the Asia-Pacific region still attracted the most investment, for the fifth year in a row.)
- There was a 21% drop in public market financing, such as IPOs and secondary offerings.
- Investments in small-scale projects of less than 1 MW generating capacity, mainly consisting of solar, fell 28% to $40B. This drop was mostly driven by lower solar prices.

The Bright Spots:

- Offshore wind project investments reached $30B, up 41% versus 2015, primarily in Europe and China, driven by improved economics.
- Offshore wind should continue to grow, doubling its total capacity to 4 GW in 2017. (The world’s largest offshore wind project, Dong Energy’s $8B, 1.8 GW project to be built off the coast of the U.K., was approved in 2016.)
- Offshore wind is also gaining ground in the U.S., with New York approving the nation’s largest offshore wind farm (90 MW) in January and Rhode Island’s offshore wind operation, the country’s first, began operating in December.
- Corporate clean energy M&A hit a record, up 63% to $33B.
- “Energy Smart Tech” total investment grew 30% to $42B which includes: smart grid, energy efficiency, energy storage, transportation and fuel cells.  Asset financing of these technologies surged 68% to $16B.
- Utility-scale asset acquisitions reached an all time high of $118B, driven by a surge in corporate M&A and institutional investor demand for clean energy projects. (We see growing demand from institutional investors as a key trend that will create new sources of capital for clean energy project developers and fund managers.)
- Distributed energy storage developers attracted project finance capital from major infrastructure investors in 2016.
- U.S. rooftop solar investment jumped from $9.8B to $13.1B.
- The rooftop solar market has been growing by 30% annually, and there are more opportunities to finance these projects, with 30 residential and commercial distributed solar project finance funds announced in 2016, compared to 24 in 2015. (We captured $4.84B of residential solar financings in 2016 in our database.)
- Electric vehicle sales grew 56% to 700,000 units sold worldwide and is expected to reach 1M in 2017, thanks to cost declines of lithium ion batteries. (This will spur continued investments in electric vehicles and charging infrastructure.)
- Venture capital and private equity investment in clean energy firms rose 19% to $7.5B. (See our 2016 clean tech VC trends analysis, driven by corporate interest in IoT and transportation.)

Outlook for 2017 and Beyond:

- Clean energy prices will continue to drop, making these projects more economical, and driving renewables to be built first in the “power system of future.”
- According to BNEF, onshore wind costs will fall 41% and solar PV costs will fall 60% by 2040.
- Solar will continue to grow worldwide, with solar installations rising to 75 GW this year, BNEF forecasts.
- Corporate procurement of renewable energy will continue to grow, with more companies going 100% renewable. (There is strong corporate demand globally for offsite utility-scale solar power purchase agreements (PPAs) and of onsite behind-the-meter solar.)
- BNEF expects energy storage capacity to double in 2017 to 1.5 GW, driven by lower battery costs.
- BNEF also forecasts record smart meter investment this year, growing from $14.4B in 2016 to $19B in 2017.
- Despite China’s investments in renewable energy having dropped to $88.2B last year, the country recently committed to investing $360B in renewable energy annually through 2020.
- And there is “tremendous interest” in financing distributed asset projects, including solar and energy efficiency, according to financiers we’ve spoken with.

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