Clean Economy growing faster than ever … but is it fast enough?
From Trash Talk to Climate Capital
2015 was a record year for clean energy project finance. According to Bloomberg New Energy Finance (BNEF), investment in clean energy increased to its highest ever figure of $329.3 billion, up 4% from 2014 and beating the previous record set in 2011 by 3%.
U.S. clean energy deployment has reached all-time highs, and 2016 is on track to outperform last year by a long shot, but some say even that is not enough? This is the topic of great debate amongst developers, investors, advisors, economists, and increasingly the general public. Climate protection has become the key issue of our times. What will it take? What are the issues and opportunities to build out this sector worldwide?
New Investment in Clean Energy 2004-2015. Credit: BNEF
U.S. clean energy deployment has reached all-time highs
According to a recent study of US clean energy deployment, solar and wind power have been growing at an impressive rate in the US, with waste-to-energy, biomass, geothermal and storage also gaining significant ground. U.S. solar PV and wind capacity alone grew by more than 28 percent and 11 percent, respectively, in a single year.*
However, the middle-market ($1 million – $200 million projects) remains underserved. I3F keynote speaker, Wayne Van Dyck, offers a brilliant solution to open this important segment of the marketplace for rapidly accelerating project finance that would otherwise remain out of reach for most developers.
Beyond the US, key regions for growth are China, Africa, Latin America and India, according to BNEF. Through the clean power plan in the U.S., the Paris Framework, and the late-2015 extension of tax credits for clean energy in the U.S., investors are jumping into the clean energy market, bringing with them significantly more dollars into the sector. 2016 could be a year where clean energy starts being more and more part of major portfolios.
Inefficiency & Waste — Mounting Problem or Unprecedented Business Opportunity?
Both, apparently. There is no cheaper feedstock that one that is initially seen a liability, representing a disposal cost. Turning that growing problem into assets and profits through clean technologies handles multiple issues at the same time. Efficiency always pays. When the “dirty” part of a waste stream contains nutrients, energy or otherwise useful materials, modern-day dumpster diving brings commercial value to the table. Extracting the waste from any system and redirecting it has economic upsides on par with “free” solar, wind, hydro, wave and geothermal energy. Limited only by our imagination. And capital.
This notion of efficiency also applies to the finance sector, where well-designed platforms increase access, streamline the flow of information (just-in-time rather than the old-school litany), collect all the necessary documents into one place, greatly reducing transaction costs.
The Middle Market Remains Key
One of the main issues is access to financing smaller projects, and the need for project equity investments in the middle market. Utility-scale projects often gain institutional investor support and represent an important piece of this puzzle, as this report shows. But what about the small- and mid-scale projects, ranging in size from $1 million to $400 million? Arguably they are 10-100 times more numerous, with more “distributed” projects providing greater diversity and stability, thus energy security, and can often leapfrog over failing or non-existent infrastructure.
Few projects in this middle market ever get funded, with most of the capital going upstream to $100 million – $200 million or larger projects
It is estimated that only one in twenty projects — that’s just 5% — actually gets funded in the current market; of the 95% that go nowhere, there are certainly a substantial number that deserve funding, but can’t quite pull it off. Why? The reasons for this vary from inexperience to sub-par economics (lack of efficiency or structural challenges), but with better organization of the deal flow and use of modern “fintech” tools, this has been cured. Want to know more? Check out our third speaker, Wayne Van Dyck, on 7 July’s Impact Innovation Investor Forum in Santa Clara. More
* The U.S. added a record 7.3 gigawatts (GW) of solar photovoltaic (PV) capacity and 8.6 GW of wind in 2015, bringing total installed capacity to 25.6 GW for solar PV and 74.4 GW for wind. Looking specifically at utility-scale resources, solar and wind represented more than 60 percent of U.S. total net capacity additions in 2015. Further cost declines in renewable technologies, particularly solar PV, are expected to reinforce and accelerate this trend. Similarly, investment and savings from U.S. electric sector energy efficiency programs have reached unprecedented levels. (Excerpt from the Ceres/CleanEdge Benchmarking Utility Clean Energy Deployment: 2016 more).
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