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SOURCES OF INVESTMENT
Debt makes up the majority of the investment going into many
utility-scale renewable energy projects, either at the project level
in the form of non-recourse loans, bonds or leasing; or at the
corporate level in the form of borrowings by the utility or project
developer. In 2015, commercial banks provided most of the
project-level debt for wind farms and solar parks in established
markets such as Europe, North America, China and India.
Bonds have been an alternative to conventional bank project
finance for many years. Issuance of green bonds hit a new record
of USD 48 billion in 2015, up 28% compared to 2014. A significant
proportion of the green bond issuance came from development
banks, commercial banks and utilities. Project bonds accounted
for a relatively small fraction of the world market for green bonds.
Apart from commercial banks and bond issues, the other major
source of debt for renewable power assets is borrowing directly
from the world’s array of national and multilateral development
banks. Aggregate figures for development bank lending to
renewables in 2015 were not yet available at the time of publication.
Among those that released preliminary figures in early 2016, the
European Investment Bank lent USD 3.4 billion to renewable
energy in 2015, down 42% from 2014; Germany’s KfW indicated
that its renewable energy programme provided EUR 4.5 billion
(USD 4.9 billion), up from EUR 4.1 billion (USD 4.48 billion); and
Brazil’s BNDES provided USD 1.8 billion to wind power projects,
with lending up by 85% in 2015.
Utilities continued to be an important source of equity for
renewable energy projects at the development or preconstruction
stage. Institutional investors such as insurance
companies or pension funds tend to be more risk-averse and
therefore interested in the predictable cash flows of an operatingstage
project. In Europe, direct investment by institutional
investors totalled USD 1.1 billion in 2014.
EARLY INVESTMENT TRENDS IN 2016
Global investment in renewable energy was USD 52.7 billion
in the first quarter (Q1) of 2016, down 12.5% from Q1 in 2015
(USD 60.2 billion). There were substantial wind power investments
in the United Kingdom and Norway; the decrease was due largely
to a decline in investment activity in China (USD 11.8 billion in Q1),
down 50% from Q4 and 37% lower than in Q1 2015. The reason
for this drop in China was a pause in investment following a rush
by wind and solar power developers in late 2015 to qualify for
electricity tariffs that were set to expire.
Investments in Europe were strong in early 2016, bucking the trend
of recent years. This was thanks largely to three billion-dollar wind
power projects that boosted Q1 investment to USD 17 billion, up
by 23% compared to Q4 in 2015 and up by no less than 70%
compared to Q1 in 2015. Investment in the United States rose
9% compared to the first quarter of 2015 (at USD 9.4 billion), and
in India it was up 6% (USD 1.9 billion). Large projects also were
financed in Africa in early 2016: the 300 MW Grand Para solar
PV installation in Djibouti and the 140 MW Olkaria V geothermal
plant in Kenya.
Brazil (down 27% compared to Q1 in 2015 to USD 1 billion)
and Japan (down 19% to USD 6.8 billion) also saw declines in
early 2016. South Africa recorded almost no deals in Q1 2016,
compared to USD 3.7 billion in the same quarter of 2015, due to
the timing of its auction rounds. Chile, Mexico and Uruguay also
had quiet starts to 2016.
Asset finance of utility-scale renewable energy projects amounted
to USD 34.3 billion worldwide in Q1 2016, down 16% compared
to the same quarter in 2015. Small-scale solar projects (< 1MW)
represented the second-biggest category of spending, worth an
estimated USD 17.4 billion in Q1, up 3% compared to Q1 in 2015.
The year 2015 also saw several new approaches for channelling
debt and equity financing into renewable power projects
worldwide. This involved the establishment of platforms through
which institutional investors could have exposure to the equity
of clean energy assets but with the reassurance of having a
technically experienced bank involved alongside them. These are
akin to unquoted funds, except that the manager is an investment
bank that invests its own capital, rather than a conventional
private equity or infrastructure fund manager.
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