The Returns of Renewable Energy Investment

The Returns of Renewable Energy Investment

Late 2016, the World Economic Forum published, “Renewable Infrastructure Investment Handbook: A Guide for Institutional Investors” — an 18-page manual that documents the financial opportunities and risks tied to clean energy.

Citing the creation of the Paris Agreement, signed by 195 governments in 2015, as a stimulus for the growing need of sustainability investment, the Forum set out to create a, “platform [that] exists at the intersection of energy, climate and investment, which gives us the unique opportunity to bring all parties together towards a mutually beneficial goal.”[1]

This intersection is where the guide’s critical points exist.

Efficiency & Cost

The growth of the technologies surrounding the creation of renewable energy has made investment into the sector much safer, which comes at a critical time. The World Economic Forum estimates a need for investments of $1 trillion by 2030 in renewable infrastructure to limit the effects of global warming. The advancements in wind and solar power technology have helped spur interest due their market competitiveness price and an increase in grid parity.

Solar panels have made a 7 percent jump in efficiency in the last five years, after 20 years of limited to no growth. The cost of a wind turbine has also dropped significantly: 30 percent in the last 3 years. This growth leads to the conclusion that, “It has become more economical to install solar and wind capacity than coal capacity.”[2] With the price of both wind and solar dropping below coal costs, renewables are a more financially attractive in many global markets.

The rise of the electric car has also helped spur innovation and create more efficient energy storage — an essential companion to intermittent clean energy. Along with the increased efficiency of storage comes a drop in price. “The average price of battery packs has fallen from $1000/kWh in 2010 to $350/kWh in 2015”. Likewise, enhanced storage capacity helps fuel feasibility in both real-world applications and the economics driving renewables.

Another key factor: “Market share gain and continued potential for renewable energy do not hinge on a subsidy advantage. In fact, according to the IEA [International Energy Agency], fossil-fuel consumption has received $493 billion in subsidies in 2014, more than four times the value of subsidies to renewable energy.”[3]

The Economics of the Market

According to the report, more than 30 countries have reached grid parity without subsidies and over 60 percent of the world should arrive there in the next few years. The continued growth of the technologies and infrastructure, along with the fact that much of this change is due to self-imposed policies, creates additional demand for renewable energy.

In 2015, for the first time ever, the majority of new power-generation capacity came from renewables — 53.6 percent of the global total. This is creating a large shift in investment because it has moved, “from high-volatility, frontier technology-like investments to more stable, utility assets.”[4]

The investment performance numbers of solar and wind energy since 2006 further build the case for renewables. In 2013, there was a marked change; solar energy saw an almost 21.3-percent increase in investment returns and a 12 percent decrease in volatility, while wind saw a more robust, 23.2-percent increase in returns and a 7 percent decrease in volatility. These numbers make a compelling argument for continued investment.

With favorable policies, limited reliance on subsidies, rapid technology advancements and strong financial returns, the economic conditions are perfect for renewable infrastructure investment. Clean energy is ready to move to the forefront, helping combat global warming and delivering attractive economics in the process. Extra financial backing will only accelerate the gains.

For more market insight, download “7 for 2017: Global Energy Market Trends”.

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[1] “Renewable Infrastructure Investment Handbook: A Guide for Institutional Investors”, pg. 3

[2]  “Renewable Infrastructure Investment Handbook: A Guide for Institutional Investors”, pg. 6

[3] pg. 6

[4] pg.8

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