Global clean energy investment had its weakest quarter since 2013 between July and September this year, under the impact of a summer lull in offshore wind financings in Europe and a further stage in the slowdown seen this year in project funding in China and Japan, according to a new report from Bloomberg New Energy Finance (BNEF).
The report says investment in renewable energy and energy smart technologies worldwide totaled $42.4 billion in the third quarter of 2016 (Q3’16), down 31% from the second quarter and a striking 43% from the equivalent three-month period of 2015.
The weakness of Q3’16 was concentrated in particular areas – asset finance of utility-scale renewable energy projects was down 49% year-on-year at $28.8 billion, with wind down 32% and solar down 67%; and investment in small-scale PV projects of less than 1 MW was 35% lower at $9.3 billion. In the geographical split, Chinese investment was down 51% compared with Q3’15, at $14.4 billion, while Japan was down 56% at $3.5 billion.
Michael Liebreich, chairman of the advisory board at BNEF, said, “These numbers for Q3 are worryingly low, even compared to the subdued trend we saw in Q1 and Q2. A vital point to bear in mind is that there have been sharp reductions in the cost of PV systems, so that much more solar capacity can be added this year than last, per million dollars.
“However, it is also clear that after last year’s record investment levels, some key markets such as China and Japan are pausing for a deep breath. Also, in many countries, electricity demand growth is undershooting government forecasts. My view is that the Q3 figures are somewhere between a ‘flash crash’ blip and a ‘new normal.’”
Abraham Louw, analyst for energy economics at BNEF, commented, “There is one special factor here, in the timing of offshore wind financings in Europe – these totaled $20.1 billion in the first six months of 2016, a runaway record. But there was then a summer lull, with just $2.4 billion in July to September.”
The report notes that the global Q3’16 investment figures could be revised upwards in due course if more transactions come to light. However, with the Q1’16 and Q2’16 data an average of 23% down on the equivalent quarters of 2015, the report says it looks certain that clean energy investment in 2016 will end up well below last year’s record of $348.5 billion.
The third-quarter investment total of $42.4 billion was the weakest in any quarter since the $41.8 billion of Q1’13. The highest quarterly total ever was $90 billion in Q2’15.
Investment by category
According to the report, the brightest feature of the Q3’16 investment figures was a jump in venture capital and private equity investment in specialist clean energy companies. This amounted to $3.2 billion in July to September, up 73% on the equivalent period last year – the highest quarterly VC/PE outturn for nearly six years.
Behind these figures were the early stage financing of two Chinese advanced transport companies – $1.1 billion for electric sports car company Le Holdings and $1 billion for WM Motor Technology, which is developing mass-market electric vehicles. The report says the third biggest VC/PE deal was $220 million for Solar Mosaic, a U.S. company providing financing for people to buy PV panels.
Public markets investment in clean energy in Q3’16 was $1.7 billion, down 58% from the corresponding quarter of 2015, with the biggest transactions being $396 million and $353 million secondary share issues by, respectively, Chinese solar inverter manufacturer Sungrow Power Supply and U.S. yieldco NextEra Energy Partners.
The report says asset finance of utility-scale renewable energy projects in Q3’16 was $28.8 billion, down 49% from the same period of last year, as stated above. The largest financing deals of the quarter were $1.8 billion for the 396 MW Merkur offshore wind farm in the German North Sea and $1.2 billion for the 299 MW Tees biomass project in the UK.
In other technologies, the largest asset financings in onshore wind were the EON Twin Forks onshore wind farm in Illinois, at 278 MW and $500 million; the SBG Cleantech Ghani solar project in India, at 350 MW and an estimated $350 million; and the Geotermica Plantanares geothermal project in Honduras, at 35 MW and $180 million.
The report states that much lower unit costs for PV panels, as well as the cooling of Japan’s solar boom, contributed to the 35% year-on-year drop in small-scale project investment, to $9.3 billion worldwide in Q3’16.
Investment by country
The report says that China was yet again the largest investing country in clean energy in Q3’16. However, its total of $14.4 billion was no less than 51% lower than it was in the same quarter of 2015 – reflecting a hiatus after last year’s rush to take advantage of incentives that were about to expire. The U.S. was the second biggest market, with investment of $9.5 billion, down 40% on Q3’15.
Europe saw clean energy investment of $7.7 billion in Q3’16, down 5% on a year earlier, with the two main contributors being the U.K. at $2.7 billion, down 12%, and Germany at $2.6 billion, up 31%. Japan had investment of $3.5 billion, down 56%, while Brazil was down 40% at $1.3 billion and India down 26% at $2 billion.
BNEF says it will be publishing clean energy investment data for the whole of 2016 in early January 2017. The fourth quarter of the year is often the busiest one, BNEF notes, as banks strive to meet lending targets and project developers take advantage of incentive programs before any year-end changes.