When reading the news about cleantech investing it can be difficult to figure out the big picture. It’s depressing to read the news about Fisker or solar companies going out of business, but then try to be more optimistic when reading that SJF Ventures raised over $90 million for a new cleantech fund, or that companies like SunPower and First Solar seem to do better.
So how does the big picture of cleantech investment look? Is it positive or grim? Luckily, we have Bloomberg New Energy Finance (BNEF) to provide us with some answers. Unfortunately, the news isn’t very good – the first quarter for 2013 was the weakest quarter for cleantech investment since 2009, with investment down 22 percent compared to the equivalent period in 2012 and 38 percent in the final quarter of 2012. This is continuing a trend that emerged in 2012 where investment activity had dropped for the first time in years.
“The decline in the first quarter,” BNEF explains, “reflected the effects of policy uncertainty in key clean energy markets such as the U.S. and Germany, a lull in financings in some relatively buoyant markets such as China and Brazil – and also the effect on dollar investment levels of the recent, sharp declines in technology costs, particularly those of solar photovoltaic panels.”
Michael Liebreich, BNEF’s chief executive, added further details on the cleantech market in 2012 in his keynote presentation at the BNEF summit in New York couple of weeks ago, similar to what we have seen in the first quarter of 2013. Here are five trends to better understand what lies behind these grim figures.
1. What goes around comes around – Apparently what we’re witnessing now in the markets is a cyclical movement balancing out 2011, which was a record year ($302 billion comparing to $269 billion in 2011). As Liebreich explained, 2011 results were influenced by the rush to get some of the stimulus money secured before it was gone. The decrease in 2012 and 2013 is, to some extent, because this stimulus money is now indeed gone.
2. Technologies have become cheaper – The other main reason for the decline in investment is significant and sustained price declines for leading cleantech technologies like solar and wind. PV module prices have fallen 80 percent since 2008, 20 percent in 2012 alone. This trend, Liebreich explained, is fundamentally driven by improvements in technology and economies of scale throughout the supply chain and also reflects the impact of substantial overcapacity we have seen since 2008. In a way, this is also a result of a balancing act as the market tries to find the balance between supply and demand.
3. Capacity actually went up – Even though investment fell in 2012, the price declines for cleantech technologies helped fuel a record 88 GW of new capacity around the world, led by a record 48.6 GW of new generating capacity installed in the wind sector.
What we see is a separation between investment activity and installment activity, or in Liebreich’s words, “the plummeting cost of clean energy technology has kept activity high in terms of MW of capacity, but not so much in dollar terms.”
4. China vs. the U.S. – the competition seems to be over – In the last couple of years we have witnessed “a fight” over the dominance in cleantech investments between China and the U.S. In 2010, it was China that was in the first place and then the U.S. pulled into the lead in 2011, which was very competitive year ($48.1 billion vs. $45.5 billion respectively). Yet, in 2012, there wasn’t much of a competition, with China’s investment increasing by 20 percent to $65 billion, while the U.S. investments in cleantech went down by 37 percent to $35 billion.
“Culminating a remarkable eight-year rise in the clean energy sector, the data suggest that China is the world’s leader and is likely to remain so for the foreseeable future. China’s clean energy marketplace evolved from a scant $5 billion invested in 2005, to become the largest and most diverse in the world,” explains a new report released by the Pew Charitable Trusts.
In the first quarter of 2013, both countries saw a decline in investments, though in the U.S. it was much worse – a 54 percent year-on-year fall in U.S. clean energy investments to $4.5 billion, while Chinese investment declined only in 15 percent to $8.8 billion.
So if we don’t consider Europe as one state, don’t be surprised to see cleantech investments transforming from a China/U.S.-dominated universe to one described as “China and the rest of the world.”
5. Bright signs – The cleantech investment is an example of the two sides of the same coin, which means that we can also find some bright signs. Liebreich reminded us in his presentation that for every supplier finding it hard to cover the marginal cost of a wind turbine or a solar panel, there was somebody on the other side of the equation who is getting cheaper equipment. BNEF forecasts that the number of GW of solar installed in 2013 will grow by about 20 percent compared to last year – but even that is not going to be enough to absorb all of the overcapacity. It means, Liebreich explained, that while it is going to be another tough year for manufacturers, it’s going to be a good year for installers, as long as they have access to financing.
Raz Godelnik is the co-founder of Eco-Libris and an adjunct faculty at the University of Delaware’s Business School, CUNY SPS and the New School, teaching courses in green business, sustainable design and new product development. You can follow Raz on Twitter.