Ethical investment

North-South clean energy investment reaches just USD8bn per annum

As the world’s climate negotiators gather for the UNFCCC COP18 conference in Doha, a white paper published by Bloomberg New Energy Finance finds just USD8bn flowed from developed to developing nations to foster deployment of large-scale clean energy power generation and biofuels production in 2011.

This constitutes eight per cent of the USD100bn per annum total cross-border investment (CBI) promised by developed countries during the 2009 COP talks in Copenhagen by 2020. That commitment was reaffirmed at subsequent COP meetings at Cancún and Durban.

Of USD280bn in new clean energy funds invested in 2011, asset finance for renewable power generation projects and biofuels plants accounted for USD165bn (60 per cent). Over two thirds of asset financings (USD115bn) came from domestic sources – i.e. the capital came from companies investing in their home markets. USD44.3bn was deployed across borders.

Last year saw a shift towards emerging economies with their share of CBI investment breaking the 25 per cent mark for the first time. This shift was driven by an 87 per cent increase in investment between emerging economies (South/South) as well as a more moderate 35 per cent rise in investment from developed nations (North/South).

In 2011, USD31bn flowed North/North, USD1.3bn South/North, USD3.8bn South/South, and USD7.9bn North/South. The North/South figure would contribute to the USD100bn that wealthy nations have pledged at the international climate talks to deploy annually to help developing world economies address the spectre of climate change, but only addresses a small portion of the pledge – components of which have not been fully defined.

Of the USD44.3bn deployed across borders in 2011, it is estimated that just 13 per cent (or USD5.8bn) was sourced from public funds. The bulk of financing for renewable energy assets has come from the private sector, accounting for 90 per cent on average of CBI investment over the period 2004 H1 2012.

Measured on a dollar basis, the top recipient of CBI since 2004 has been the US with a cumulative inflow of USD62.5bn. This is nearly three times the equivalent values of the next two top ranked countries, Spain and the UK. Top overseas investors are Germany (USD39.8bn), Spain (USD28.5bn), France (USD21.4bn) and the US (USD18.2bn).

China has seen the highest volume of new-build asset finance in renewable energy overall since 2004 with cumulative investment of USD192.2bn. Nearly all of this came from local investors, with just USD7.9bn (4 per cent) of foreign investment. The US saw a total of USD164.4bn invested in projects there with 38 per cent of the funds coming from overseas.

Germany was the leading overseas financier as measured in dollar terms, having invested USD39.8bn abroad from 2004 through H1 2012. Germany's position comes from a long tradition of both trade financing and manufacturing for export markets.

The investment figures quoted in the white paper relate to renewable energy asset investment, which constitutes the largest single constituent of climate-related infrastructure spending overall.

Michael Liebreich, chief executive of Bloomberg New Energy Finance, says: "This analysis shows we are far from seeing anything like the promised USD100bn per year flow of climate finance to the developing world. While the climate negotiators in Doha are working on the institutional structure of the Green Climate Fund, this analysis shows the real issue is that the private sector is far from comfortable investing in climate-related assets, while developed world governments are under far too much fiscal and political pressure to make up the shortfall.

"It should be noted however that private investors are poised and ready to deploy significantly more clean energy capital into the developing world. What gives them pause is not specific to clean energy but revolves around perceived currency and political risks in these emerging markets. While significant, these concerns are hardly insurmountable and can be addressed by the international community with the right mix of policies and financial instruments."

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