Jennifer Runyon, Chief Editor, RenewableEnergyWorld.com
January 30, 2014 | 5 Comments
The world of renewable energy finance is vast: encompassing everything from venture capital funding for innovative start-ups, to research and development (R&D) and manufacturing expansion spending, to project finance and all the way through to investing in clean energy companies on the stock market. Because of that, for the general public, predicting where money will flow over the course of the next year is a shot in the dark at best. But there are finance experts who spend their lives tracking where the money is and where it isn’t and here we offer you their expert opinions on renewable energy cash flow in 2014.
This article is part of our Renewable Energy World January/February Annual Outlook Issue for 2014, which will be published on February 10, 2014. The issue includes our Global Directory of Suppliers. If you are not already a subscriber, CLICK HERE to subscribe now!
Funding Innovation: Venture Capital Dollars No Longer Available
Renewable energy finance experts describe the early days of clean tech venture capital (VC) investment as being one fraught with “exuberance” and “frothiness.” Investors were eager to fund what they believed would be the next big thing and clean tech aka green energy aka renewable energy was where the action was. Dallas Kachan of boutique cleantech research and advisory firm Kachan and Company points to biofuels as a technology that received billions of dollars of investment capital in 2007 and 2008 and now has very little to show for it. Not a good result for an early-stage investor.
Kachan said that in 2014 VCs will be funding what he called “capital efficient plays,” for example, “energy efficiency or efficiency in general…so-called cleanweb investments,” he said. Cleanweb refers to the intersection of IT and sensors and big data, i.e. products and services that drive efficiency in homes by using the cloud (think nest thermostats) or drive efficiency in workflow or access to capital such as crowdfunding. “There has been an emphasis on capital efficient initiatives as opposed to 2007 and 2008 and the massive billions of dollars that we saw go into biofuels, for instance,” he explained.
(Image, right: Global Total Investments in Clean Energy (2004-2012). Credit: Bloomberg New Energy Finance)
VC investment in renewable energy has been trending down for the past two years in fact and it will continue to do so in 2014 and beyond, said Kachan. “We predict that in 2014, we will continue to see companies having a harder and harder time raising venture capital,” he said, “but that’s not necessarily a bad thing.”
Kachan, a seasoned cleantech investment advisor, believes that 2014 may actually be the year that renewable energy expectations and deliveries begin to match. In other words, the technology is mature enough that investors understand what it is capable of providing and invest accordingly. In addition, major corporations are getting into renewable energy. “The largest companies in the world are taking a more active, aggressive role than ever in wanting to profit from clean energy,” said Kachan who explained that renewable energy and clean tech are still following the same trajectories of those technologies that came before them. “This is representative of the overall lifecycle of the maturation of the clean tech space,” he said. “If you look at other technology revolutions in the past where venture capital played a dominant role in the early days, sources of capital diversify over time,” he explained.
“That is clearly underway in cleantech,” he concluded and we need not worry about it. “It’s important to remember that this doesn’t mean the sky is falling, it just means that we are following the same trends, the same waves that happened in other industries.”
Project Finance: Utility-Scale Wind and Solar Still Grabbing the Lion’s Share
With five solid years of installed capacity growth coupled with steady cost reductions, it’s no surprise that renewable energy finance experts agree that large-scale wind and solar projects will receive the biggest portion of renewable energy dollars in 2014.
“Utility scale solar, mainly photovoltaic solar, and utility-scale wind will continue to be active in their growth in particular outside of the U.S.,” said Adam Umanoff, partner with Akin Gump law firm. Lynn Tabernacki, managing director of renewable and clean energy at Overseas Private Investment Corp. (OPIC) agreed. “In 2014, solar and wind will remain the mainstay of renewable energy investments because of sustained cost reductions for plant construction using these technologies,” she said.
Umanoff pointed to the Middle East as a region that is looking to tap renewable energy as an electricity source in the coming years. He said that Middle Eastern countries would like to dramatically reduce the amount of oil they use a fuel source for electricity generation so that they can garner more profits from selling their oil on the open market. “That’s what we’ve seen in the past year,” he said, mentioning, “the Saudis came out with a huge 5-GW plus mandate for solar.” Umanoff believes that CSP plus storage will play a role in building up that supply of renewable energy capacity.
Large energy end-users are also becoming more interested in renewable energy, said Umanoff. He said that the industry is active in Latin America. “In Chile, we’ve got very high power prices, relatively unreliable supply, and yet active commercial activity,” he said. And the same goes for Africa, “especially around the mining industry. There we are seeing both wind and solar looking very attractive,” he explained.
Tabernacki agreed and pointed to an uptick in public/private partnerships in developing nations as helping give rise to more renewable energy projects. “From the public side for example, the Power Africa Initiative has marshaled U.S. government trade and development resources for the specific purpose of energy development in six pilot countries in Africa,” she said. Specifically those countries are Kenya, Liberia, Ethiopia, Nigeria, Ghana, and Tanzania. Tabernacki also sees these types of partnerships in Asia. “There is a similar program directed to South-East Asia under the US-Asia Clean Energy Partnership,” she explained.
“Mobilization of grant funding, technical assistance, transaction advisory services, and project financing from these public sources is expected translate into an increase in renewable energy investments in these regions next year,” Tabernacki concluded.
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