London, UK By 2010, renewable energy had reached a clear tipping point in the context of global energy supply, concludes the ‘Renewables 2010 Global Status Report’. With renewables comprising fully one quarter of global power capacity from all sources and delivering 18% of global electricity supply in 2009, the latest release of the definitive assessment of the state of the global renewable energy industry from the Renewable Energy Policy Network for the 21st Century (REN21) details the current status and key trends of global markets, investment, industry and policies related to renewable energy.
Investment in new renewable power capacity continued to increase during 2009, despite challenges posed by the global financial crisis, lower oil prices, and slow progress with climate change policy. For the second year in a row, more money was invested in new renewable power capacity than in new fossil fuel capacity. The renewable generating capacity installed over the past two years accounts for nearly 50% of total generating capacity added to the world’s grids over this period.
Furthermore, the rapid adoption beyond the industrialised world means that today more than half of the existing renewable power capacity is in developing countries.
These trends reflect strong growth and investment across all market sectors including power generation, heating and cooling, and transport fuels. Grid-connected solar PV has grown by an average of 60% every year for the past decade, increasing 100-fold since 2000. During the period from year-end 2004 through 2009, consistently high growth year-after-year marked virtually every other renewable technology as well. During those five years, annual growth rates averaged 27% for wind power capacity, 19% for solar water heating, and 20% for ethanol production. Indeed, as other economic sectors declined around the world, existing renewable capacity continued to grow during 2009 at rates close to, or exceeding, those in previous years. Market growth for some technologies – including wind and concentrating solar power, and solar water heating – exceeded their five-year averages in 2009. Annual production of ethanol and biodiesel increased 10% and 9%, respectively, despite layoffs and ethanol plant closures in the United States and Brazil. Biomass and geothermal for power and heat also grew strongly last year.
Much more active policy development during the past several years culminated in a significant policy milestone in early 2010 with more than 100 countries having some type of policy target and/or promotion policy related to renewable energy in place. Most countries have adopted more than one policy and there is a significant diversity of policy mechanisms in use at national, state/provincial and local levels to advance renewable energy. In addition, many of the new targets enacted in the past three years call for shares of energy or electricity from renewables in the 15%-25% range by 2020.
Renewable Energy Extends Its Reach
Recent trends also reflect the increasing significance of developing countries in advancing renewable energy. Collectively, developing countries now account for almost half of the countries with some sort of policy to promote renewable power generation, and they have more than half of global renewable power capacity. Today China leads the world in several indicators of market growth. India ranks fifth worldwide in total existing wind power capacity and is rapidly expanding many forms of rural renewables such as biogas and solar PV, while Brazil produces virtually all of the world’s sugar-derived ethanol and has been adding new biomass and wind power plants. Renewables markets are growing at rapid rates in several other developing countries such as Argentina, Costa Rica, Egypt, Indonesia, Kenya, Tanzania, Thailand, Tunisia and Uruguay, to name a few.
The geography of renewable energy is changing in ways that suggest a new era of geographic diversity. For example, wind power existed in just a handful of countries in the 1990s but now operates in over 82 countries. Outside of Europe and the US, other developed countries like Australia, Canada and Japan are seeing recent gains and broader technology diversification. The developing world is experiencing a similar trend and, for example, today at least 20 countries in the Middle East, North Africa and sub-Saharan Africa have active renewable energy markets. This geographic diversity is boosting confidence that renewables are less vulnerable to market dislocations in any specific country.
Meanwhile, leadership in manufacturing is shifting from Europe to Asia as countries like China, India and South Korea continue to increase their commitments to renewable energy. In 2009, firms in China produced 40% of the world’s solar PV cell supply, 30% of the world’s wind turbines (up from 10% in 2007), and 77% of the world’s solar hot water collectors.
Figure 1. Installed capacity by region and technology for 2009
Renewables Investment Remains Robust
Greatly increased investment from both public-sector and development banks is also driving renewables development. Excluding large hydro, total investment in renewable energy capacity was about US$150 billion in 2009, up from the revised $130 billion recorded in 2008. Investment in new renewable power capacity in both 2008 and 2009 represented over half of total global investment in new power generation. However, investment in utility-scale renewable energy additions dropped 6% in 2009 from the 2008 level, despite ‘green stimulus’ efforts by many of the world’s major economies and increased investments from development banks in Europe, Asia and South America.
All told, again excluding large hydro, the world invested $101 billion in new utility-scale renewable energy development in 2009, compared with $108 billion in 2008. In 2009 there was also investment of some $50 billion worldwide in small-scale projects such as rooftop solar PV and solar hot water. An additional $40-$45 billion was invested in large hydropower.
Renewable energy companies invested billions of dollars in plant and equipment to manufacture solar modules, wind turbines and other generating devices during 2009. Venture capital and private equity investment in clean energy companies totalled $4.5 billion, down from $9.5 billion in 2008, while public market investment in quoted clean energy firms reached $12.8 billion, up from $11.8 billion. Government and corporate research, development, and deployment spending on clean energy technology in 2009 is estimated at $24.6 billion, up around 2% from 2008, the bulk (68%) of which went to energy-efficiency technologies.
Germany and China were the investment leaders in 2009, each spending roughly $25-$30 billion on new renewables capacity, including small hydro. They were followed by the US, investing over $15 billion, and Italy and Spain with about $4-$5 billion each.
The wind energy sector continued to be the hands-down leader, receiving 62% of the global total invested – $62.7 billion in 2009, up from $55.5 billion the year before. Most of the growth was due to China’s rapid capacity expansion, increased investment activity in the wind sector in Latin America, and a handful of large utility-backed offshore wind deals in the UK.
These gains were offset by a $5.6 billion drop in solar power asset investment, to $17.1 billion in 2009, and a plunge in biofuels spending, down to $5.6 billion from $15.4 billion in 2008. Lower investment in PV in 2009 was due to several factors. One was the behaviour of prices along the value chain, with PV module prices falling by some 50% over the year, bringing the dollar value of financial investment down with them. Other factors included the Spanish government’s cap on PV project development at the end of the boom associated with the pre-September 2008 tariff, and the shortage of debt finance for utility-scale projects in Europe and the US, which also affected wind farms. Concerns about scheduled reductions in feed-in tariff support for PV in some countries actually spurred on developers rather than holding them back. Indeed, Germany witnessed a spectacular end-of-2009 spurt in small-scale PV project construction.
In 2007, biofuels commanded 22% of global asset finance, with investment totalling $19.6 billion. However, the sector slipped to $15.4 billion in spending in 2008 and just $5.6 billion in 2009, representing only 5% of global project investment. An oversupply in US ethanol continued to smother investment in the biofuels sector in 2009. Things may soon turn around as both Brazil and the United States continue to follow ambitious biofuels targets. Brazil’s state-owned oil company Petrobras has moved into the ethanol sector, and US plants bought under bankruptcy auctions in 2008 and 2009 have begun slowly to resume operation.
The decline in asset investment in biofuels relegated the sector to fourth place among the renewable energy sectors in 2009. Stepping up to third place, after wind and solar, was biomass (including waste-to-energy), with a rise in investment to $10.4 billion, from $9 billion in 2008.
In Europe, Brazil and elsewhere, the brightest feature for project investors during 2009 was the expanded role of public sector banks. The European Investment Bank (EIB) and Germany’s KfW Banking Group, in particular, significantly raised their lending to renewable energy. The European Bank for Reconstruction and Development (EBRD) played an active role in project finance, albeit not on the scale of the EIB and KfW, as did the Brazilian National Bank of Economic and Social Development (BNDES) for Brazilian projects (though its lending declined relative to 2008 levels).
This strong contribution by the public sector was all the more needed, because many commercial banks – from Europe to the United States and elsewhere – found it impossible to sustain the 2008 level of lending to renewable energy projects. Overall, development assistance for renewables in developing countries surged in 2009, up to $5 billion from $2 billion in 2008. For example, the World Bank Group, including the International Finance Corporation and the Multilateral Investment Guarantee Agency (MIGA), saw the largest increase to date in finance from previous years. Finance rose fivefold in 2009 as $1.38 billion were committed to new renewables (solar, wind, geothermal, biomass and hydro below 10 MW) and another $177 million to large hydropower.
Expanding the Reach of Policies and Targets
Growth in renewables is inevitably supported through government policy. Renewable energy policies existed in a few countries in the 1980s and early 1990s, but policy support began to emerge in many more countries, states, provinces, and cities during the period 1998-2005, and even more so during 2005-2010.
Many countries have adopted national targets for shares of electricity production. Targets are typically for 5%-30% of electricity from renewable sources, but they range from 2%-90%. Many historical targets have aimed for the 2010-2012 timeframe, but targets aiming for 2020 and beyond have multiplied in recent years.
Developing nations now make up more than half of the countries worldwide with renewable energy targets. The ‘Renewables 2007 Global Status Report’ counted 22 developing countries with targets, a figure that had expanded to 45 by early 2010. Developing countries’ targets are also becoming increasingly ambitious. For example, China aims for 15% of final energy consumption from renewables by 2020, even as total energy demand continues to grow at nearly double-digit annual rates.
Several countries have adopted targets at state/provincial and regional levels – and at other levels as well – with many mandated through renewable portfolio standards (RPS) and other policies.
In 2008, all 27 EU countries confirmed national targets for 2020, following a 2007 EU-wide target of 20% of final energy by 2020. It appears that many countries won’t meet their 2010 targets by the end of the year, although this won’t be known immediately due to data lags. Nonetheless, some EU countries were close to or had already achieved various types of national 2010 targets early in the year, including France, Germany, Latvia, Spain and Sweden.
City and local governments around the world are also enacting renewable energy promotion policies. Hundreds of cities and local governments have established future targets for renewables; urban planning that incorporates renewables into city development; building codes that mandate or promote renewables; tax credits and exemptions; purchases of renewable power or fuels for public buildings and transit; innovative electric utility policies; subsidies, grants, or loans; and many information and promotion activities.
Figure 2. Growth in renewables capacity, annual and five-year average
Supporting Renewable Electricity Generation
At least 83 countries – 41 developed/transition countries and 42 developing countries – have some type of policy to promote renewable power generation. The 10 most common policy types are feed-in tariffs (FiTs), renewable portfolio standards, capital subsidies or grants, investment tax credits, sales tax or VAT exemptions, green certificate trading, direct energy production payments or tax credits, net metering, direct public investment or financing, and public competitive bidding.
The most common policy currently in use is the feed-in tariff, which has been enacted in many new countries and regions in recent years. By early 2010, at least 50 countries and 25 states/provinces had adopted FiTs over the years, more than half of which have been enacted since 2005.
Strong momentum for feed-in tariffs (FiTs) continues around the world as countries enact new policies or revise existing ones. For example, France adopted a tariff for building-integrated PV that was among the highest in the world (€0.42-€0.58/kWh). Other countries that adopted or updated FiTs included the Czech Republic, Germany, Greece, India, Ireland, Japan, Kenya, Slovenia, South Africa, Taiwan, Thailand, Ukraine and the UK. In some countries, tariffs were reduced in response to technology cost reductions, market slowdowns and concerns about foreign manufacturer market share; indeed, reductions were more prevalent in 2009 and early 2010 than in previous years.
Renewable portfolio standards (RPS) – also called renewable obligations or quota policies – exist at the state/province level in the US, Canada and India, and at the national level in 10 countries: Australia, Chile, China, Italy, Japan, the Philippines, Poland, Romania, Sweden and the UK. Globally, 56 states provinces, or countries had RPS policies in place by early 2010. Most RPS policies require renewable power shares in the range of 5%-20%, typically by 2010 or 2012, although more recent policies are extending targets to 2015, 2020 and 2025. Most RPS targets translate into large expected future investments in renewable generation, although the specific means (and effectiveness) of achieving quotas can vary greatly across countries or states.
Investment tax credits, import duty reductions and/or other tax incentives are also common means for providing financial support at the national level in many countries, and at the state level in the United States, Canada and Australia. Many tax credits apply to a broad range of renewable energy technologies, such as Indonesia’s new 5% tax credit adopted in early 2010, and a new 2009 policy in the Philippines for seven-year income tax exemptions and zero-VAT rates for renewable energy projects.
Energy production payments or credits, sometimes called ‘premiums’, also exist in a handful of countries while capital subsidies and tax credits have been particularly instrumental in supporting solar PV markets. Net metering (also called net billing) is an important policy for rooftop solar PV and laws now exist in at least 10 countries – including a growing number of developing countries. A few jurisdictions are also begining to mandate solar PV in selected types of new construction through building codes.
Supporting Renewable Heating & Transport
More countries are also adopting policies to support renewable heat and transport. The primary focus of heat-related measures has been solar water heating, and mandates for solar hot water in new construction represent a strong trend at both national and local levels. For years Israel was the only country with a national level mandate, but Spain followed in 2006 with a national building code that requires minimum levels of solar hot water in new construction and renovation. Solar thermal systems must meet 30%-70% of energy needs for hot water, depending on climatic zone, consumption level, and backup fuel. Many other countries have since followed suit. South Korea’s new 2010 mandate requires on-site renewable energy to contribute at least 5% of total energy consumption for new public buildings over 1000 m2, for example. Other countries with solar hot water targets include Morocco and Tunisia.
Capital subsidies for solar hot water are now a common policy in many states and countries. At least 20 countries, and probably several more, provide capital grants, rebates, VAT exemptions, or investment tax credits for solar hot water/heating investments, including Australia, Chile, Japan, New Zealand, Portugal, Spain, and Uruguay.
In the transport sector, mandates for blending biofuels into vehicle fuels have been enacted in at least 41 states/provinces and 24 countries at the national level. Most mandates require blending 10%-15% ethanol with gasoline or 2%-5% biodiesel with diesel fuel. Mandates can now be found in at least 13 Indian states/territories, nine Chinese provinces, nine US states, five Canadian provinces, two Australian states, and at least 14 developing countries at the national level.
In addition to mandated blending, several targets and plans define future biofuel use. Countries with production or use targets include the US, the UK, Japan, China and South Africa. Targets for renewable energy’s share of transportation energy exist in at least four EU countries at the national level (Belgium, Croatia, France and Portugal), as well as the EU-wide target of 10% of transport energy by 2020, covering both sustainable biofuels and electric vehicles.
Basis for Optimism
Almost all renewable energy industries experienced manufacturing growth in 2009. It must be conceded, however, that many capital expansion plans were scaled back or postponed.
The REN21 Renewables 2010 Global Status Report reveals that for the second year in a row, in both the United States and Europe, more renewable power capacity was added than conventional power capacity from fossil fuels or nuclear. China added a staggering 37 GW of renewable power generation capacity in 2009, more than any other country in the world, to reach 226 GW installed. Globally, nearly 80 GW of renewable power capacity was added, including 31 GW of hydro and 48 GW of non-hydro capacity.
Indeed, wind power additions reached a record high of 38 GW – China was the top market, with 13.8 GW added. Solar PV additions reached a record high of 7 GW – Germany was the top market, with 3.8 GW added. And many countries saw record biomass use – notable was Sweden, where biomass accounted for a larger share of energy supply than oil for the first time. And biofuels production contributed the energy equivalent of 5% of world gasoline in 2009.
Even the most cynical observer must acknowledge this is a success story by any means, let alone under the current economic climate. Renewable energy is now breaking into the mainstream of energy markets thanks to hundreds of new government policies, accelerating private and public investment, and numerous technology advances achieved since the first Renewables Global Status report was released in 2005.
Despite the continuing advances highlighted in this year’s report, the world has tapped only a fraction of the vast renewable energy resources available to us. Further strengthening of policy support can help drive the massive scale up in renewables needed for the sector to play a major role in building a stable, secure and enduring low-carbon global economy.
David Appleyard is chief editor of Renewable Energy World. Janet Sawin is research director (2008-2010) and lead author of the REN21 Renewables Global Status Report. She is also a partner at Sunna Research and a senior fellow with the Worldwatch Institute. Eric Martinot is research director emeritus and lead author of the REN21 Renewables Global Status Report. He is also a senior research director at the Institute for Sustainable Energy Policies and a senior fellow with the Worldwatch Institute.
Most of the investment data was provided by Bloomberg New Energy Finance (BNEF). See also the UNEP/BNEF report Global Trends in Sustainability Energy Investment 2010, which was released jointly with the REN21 report.
Sidebar: Renewables Investment Trends in 2010
The first quarter of 2010 found the renewable energy sector largely out of the limelight, following the inconclusive Copenhagen climate change conference in December 2009. However, investment continued at a level significantly above that of a year earlier. Investment in clean energy assets (not including large hydro) was $29.5 billion in the first quarter of the year, some 63% above that in the same period of 2009. It was up from $26 billion in the fourth quarter of 2009, a strong result given the continuing uncertainties in the world economy and the financial markets and the impact of the Northern Hemisphere winter on project progress. The highlights of the first quarter included a healthier figure for asset finance in the United States, at $3.5 billion from $2.3 billion in the fourth quarter of 2009, helped by a $394 million construction debt package for a California wind farm and another big number for China, $6.5 billion, reflecting its investment in wind ‘mega bases’ and smaller projects. The quarter was also notable for a continuation of the recovery in venture capital and private equity investment in clean energy. This reached $2.9 billion, up from $1.7 billion in the fourth quarter of 2009 and $1.5 billion in the first quarter of 2009.