April 1, 2015 – Global investments in renewable energy rebounded strongly last year, reports UNEP (United Nations Environment Program), registering a 17% increase after two years of declines, and “brushing aside the challenge from sharply lower crude oil prices”.

The 103GW of generating capacity added around the world made 2014 the best year ever for newly installed capacity, according to the UNEP’s 9th annual Global Trends in Renewable Energy Investments report, prepared by the Frankfurt School-UNEP Centre, and Bloomberg New Energy Finance.

“Once again in 2014, renewables made up nearly half of the net power capacity added worldwide,” said Achim Steiner, UN under-secretary-general and executive director of UNEP.

Major expansion of solar installations in China and Japan, along with “record investments” in offshore wind projects in Europe helped propel global 2014 investments to $270 billion, up from $232 billion in 2013.

It was the first annual increase in dollars invested in, and committed to, renewables (excluding large hydroelectric projects) in three years, says UNEP, a total just 3% below the all-time record of $279 billion set in 2011. The falls in the investment figures for 2012 (to $256 billion) and 2013 (to $232 billion) were attributed, in part, to lower prices for renewable energy technologies due to economies of scale, says UNEP.

A continuing sharp decline in technology costs—in solar but also in wind—means that every dollar invested in renewable energy bought significantly more generating capacity in 2014, says UNEP. The 103GW of capacity added by new renewable energy sources last year compares to 86GW in 2013, 89GW in 2012 and 81GW in 2011.

UNEP also says the 103GW of capacity added by renewables last year equals the energy-generating capacity of all 158 nuclear power plant reactors in the United States.

Where’s the investment going?
China saw the biggest renewable energy investments last year: $83.3 billion, up 39% from 2013. The U.S. was second at $38.3 billion, up 7% on the year (though this is below its all-time high reached in 2011). Third came Japan, at $35.7 billion, 10% higher than in 2013 and its biggest total ever.

As in previous years, the market in 2014 was dominated by record investments in solar and wind, which accounted for 92% of overall investment in renewable power and fuels. Investment in solar jumped 25% to $149.6 billion, the second-highest figure ever, while wind investment increased 11% to a record $99.5 billion. In 2014, some 49GW of wind capacity and 46GW of solar PV capacity were added worldwide (both records).

The dominant feature of the solar sector was unprecedented expansion in China and Asia. Between them, the two Asian giants invested $74.9 billion in solar in 2014, around half the world’s total.

In China, utility-scale projects of more than 1MW made up about three-quarters of the solar investment of $40 billion, which was a 45% increase on the previous year. In Japan, on the other hand, investment was dominated by small-scale projects of less than a megawatt, which accounted for 81% of a total solar investment of $34.8 billion, a 13% increase on 2013.

A boom in European offshore wind development resulted in seven $1 billion-plus projects reaching the ‘final investment decision’ stage in 2014. Among these, the $3.8-billion 600MW Gemini installation off the coast of the Netherlands was the largest non-hydro renewable energy plant to get the go-ahead anywhere in the world.

Offshore wind projects worth $18.6 billion were financed globally in 2014. This was 148% higher than the previous year and 45% higher than the next highest year, 2010. Most of this total—$16.2 billion—was in Europe, with China accounting for the remaining $2.4 billion.

By comparison, other renewable energy sources did not perform so well. Biofuels fell 8% to $5.1 billion, biomass and waste-to-energy dropped 10% to $8.4 billion and small hydro was down 17% to $4.5 billion. Only geothermal bucked the trend with a 27% increase to $2.7 billion.

A salient feature of the 2014 result was the rapid expansion of renewables into new markets in developing countries, where investments jumped 36% to $131.3 billion. China with $83.3 billion, Brazil ($7.6 billion), India ($7.4 billion) and South Africa ($5.5 billion) were all in the Top 10 investing countries, while more than $1 billion was invested in Indonesia, Chile, Mexico, Kenya and Turkey.

In contrast, the total renewables investment in developed economies rose only 3% to $138.9 billion. Even accounting for the booming offshore wind sector, investments in Europe hardly changed at $57.5 billion.

Despite turnaround, challenges remain
Although 2014 was a turnaround year for renewables after two years of shrinkage, multiple challenges remain in the form of policy uncertainty, structural issues in the electricity system… even in the very nature of wind and solar generation with their dependence on Mother Nature.

Another challenge was, at first sight, the impact of the 50%+ collapse in the oil price in the second half of last year. According to Udo Steffens, president of the Frankfurt School of Finance and Management, however, the oil price is only likely to dampen investor confidence in parts of the sector, such as solar in oil-exporting countries, and biofuels in most parts of the world.

“Oil and renewables do not directly compete for power investment dollars,” said Steffens. “Wind and solar sectors should be able to carry on flourishing, particularly if they continue to cut costs per MWh. Their long-term story is just more convincing.”

Of greater concern is the erosion of investor confidence caused by increasing uncertainty surrounding government support policies for renewables.

“Europe was the first mover in clean energy, but it is still in a process of restructuring those early support mechanisms,” noted Michael Liebreich, chair of the advisory board for Bloomberg New Energy Finance. “In the UK and Germany we are seeing a move away from feed-in tariffs and green certificates toward reverse auctions and subsidy caps, aimed at capping the cost of the transition to consumers.”

“In the U.S. there is uncertainty over the future of the Production Tax Credit for wind, but costs are now so low that the sector is more insulated than in the past. Meanwhile the rooftop solar sector is becoming unstoppable,” added Liebreich.

There are also structural challenges in the electricity system as grids and utilities in many countries struggle to cope with the increasing penetration of wind and solar in the generation mix. Coping with 25% or more variable generation is more difficult for grids and utilities than managing a 5% proportion, says UNEP.

Images courtesy UNEP.