Takeaways from 2013 global cleantech investment figures

Bloomberg New Energy Finance (BNEF), which tracks global investment in renewable energy, released their 2013 Global Trends report recently. At first glance the macro findings weren’t great—investment in renewable energy dropped 14 percent in 2013. Investment was down $35 billion to $214 billion, a full 23 percent below the 2011 record.
But dollar figures alone don’t tell the whole story. Renewable energy accounted for 43.6 percent of the world’s newly installed electricity generating capacity, a fairly startling statistic when you consider that almost half of new power development worldwide is now renewable. Those massive figures can’t be driven by subsidies alone and are not.
Rather, the price of solar photovoltaic and wind power continues to decline sharply, making them increasingly cost competitive with natural gas and coal. In fact in places with higher retail electricity prices and strong solar radiation or wind, subsidies are now unnecessary. 2013 saw a record of 39 gigawatts of solar power installed worldwide versus 31 gigawatts installed in 2012. More importantly that 39 gigawatts was deployed at a lower cost than the 31 gigawatts installed in 2012, proof of significant declines in cost.
By region, subsidy rollbacks continue to throttle investment, particularly in Europe where countries from the UK to Romania have either threatened cuts or are already in the process of making subsidy cuts. The sheer instability alone can make putting together asset finance for major renewables projects a challenge.
The Americas, excluding the U.S. and Brazil, along with Japan have been among the few areas which are seeing strong growth in investment with Japan leading the way with investment up 80 percent. The drop in investment in the developing world was disappointing, it being down 14 percent last year after 8 years of increases. Though the Q1 figures in 2014 already are suggesting a rebound, with quarterly investment in Africa and the Middle East up over 80 percent versus a year ago.
The final important upside of 2013 was the rally in public markets for clean energy shareholders. Those who had the prescience to stand firm in 2012 and buy at the bottom have made out like bandits.
On the topic of public markets, the authors of the report, which is a collaboration with the Frankfurt School and the United Nations Environmental Programme (UNEP), write:

After a four- and-a-half-year bear market in clean energy stocks that brought share prices down by a total of 78%, the WilderHill New Energy Global Innovation Index, or NEX, bottomed out in July 2012. This bottoming developed into a strong rally during 2013, with the NEX, which tracked 96 clean energy stocks worldwide last year, gaining 54%.

It’s not clear that such great public market stock performance will drive a rebound in upstream venture investment as the report showed that venture capital and private equity investment was down by almost half. It’s those figures that I often pay close attention to because at present most venture investment is focused on later stage investment with fewer deals occurring and seed stage financing tough to come by.
Most of the success stories have been in non traditional cleantech like the share economy (Airbnb’s recent $10 billion valuation) or efficiency (Google’s acquisition of Nest). Next generation renewable energy plays, be it solar technology or battery chemistry innovations, remain debt capital intensive and are thus more difficult bets for investors. The lack of earlier stage financing is a challenge long term, even if the potential payoffs of next gen technology are massive as a breakthrough like a major improvement in the energy density of batteries could completely level the playing field with fossil fuels.
In general I remain optimistic for a strong 2014. We may see some more global dipping in investment, but the macro trends of escalating fossil fuel costs, particularly outside of the U.S. which is an anomaly with its dirt cheap natural gas, along with declining renewable costs move us closer to an energy market where subsidies can be non factors.
I’d love to see more investment in technologies that are in the pre commercial stage and greater R&D capital, but given the challenging sovereign debt situations across the globe, it will be difficult to persuade government to increase their funding support and venture capitalists are unlikely to pick up the slack. The question remains whether the current pace of technological innovation can provide enough of an impetus to curb fossil fuel power generation and slow climate change. Only time will tell.