2015’s $329 Billion Renewable Energy Investment Is A Big Deal – On The Surface

Early into 2016 we started to hear about how 2015 was a record breaking year for renewable energy investment. The global markets hit a staggering USD 329 billion according to Bloomberg New Energy Finance. But is it really a “record” and where do those numbers come from? I decided to find out, turning to BNEF’s own analysis in their 3rd quarter reports in an attempt to separate the wheat from the chaff.

First and foremost, there are little doubts the lion’s share of the gains in renewable energy have come from China. Their deployments of wind and solar continue to far out pace that of any other country, and even before COP21 in Paris, China was revising their renewable energy expectations upwards.

However; what is less reported, as much of the our focus is pointed towards new promising technologies and “unusual suspects” entering the low carbon transition in a big way, is that for China, none of their wind and solar gains could be achieved without a massive deployment of Ultra High Voltage Direct Current (UHVDC) transmission lines linking west to east and south to north.

There is also little secret that China is reviving commercial nuclear power in a way even the technology’s strongest advocates struggle to believe, and the price-point of a Chinese nuclear reactor, has nuclear countries like England & France welcoming China into their domestic projects.

Europe continues to plug along in renewable energy deployments. However, at present, the financial impacts of bearing the high costs of early technology deployments and bringing economy of scale confidence to the global markets has impacted deployment rates substantially. The rates vary from country to country; from steady but depressed increases in Germany and Denmark, to slight increases in France as it has decided to phase down nuclear; to worst case scenarios, zero new deployments in Spain.

Although Spain’s fall from grace as being an early front runner of renewable energy’s successes can notably be attributed to the reversal of political favor, it has not been contained solely as an internal crisis. The collapse of Spanish renewable energy giant Abengoa has reached as far as Brazil, Chile, South Africa and the United States. And from my perspective, their focus on “power tower” projects – Concentrated Solar Power (CSP) and biofuels, may bear significant weight in their current financial “distress”.

The United States itself has not flattered the global renewable energy scene in terms of renewable energy deployments, however we have lead the way in “creative” mechanisms in order to finance these projects.

“Record breaking news” peppered throughout 2015 told most readers of a much different story than what was actually happening. Notable stories from 2015 came in all forms, but for me some of the biggest “all hype, little brawn” events were;

  • “U.S. hits 20,000 MW of solar deployments [in August]”;
  • “Wind energy could replace coal [based on “equal” capacity factors]”;
  • “The U.S. may never need another ‘peaker’ plant again”;
  • “Tesla announces the Powerwall”; and the list continues.

My commentary on just how “cherry picked” these stories were can be found throughout the LinkedIn “universe”, but suffice it to say, they haven’t made me the most popular person within the “hypo-sphere” that has little intention of letting up in 2016.

So what are a few takeaways revealed within BNEF’s analysis from 3rd Quarter 2015?

 

No alt text provided for this image

 

$329 billion investment was in fact a record. However, this ignores investment has not seen consistent year on year improvements.

2012 and 2013 saw declines below the $300 billion mark. And the 2011 record of $318 billion, matched again in 2014, saw investments plummet to 295 & 268 billion respectively for those two years. Taking these declines into account we end up with a five-year average of $305 billion investment or $1.525 trillion over the period.

Yes, I admit this is a net positive, where we are seeing much more renewable energy deployments per dollar spent, particularly in China where economies of scales boggle western minds. But there is also a growing feature of our investments to reduce our carbon liabilities called ‘asset management” to which we need to be mindful.

Although the sun shines and the wind blows giving us a free fuel source when the conditions are right, harnessing this energy is not without its costs to keep the plants running and in working order.

Second, there is an increasing need to examine what constitutes sound investments into renewable energy, as dropping prices alone does not guarantee they become competitive with traditional energy sources. Are these investments straight-line new capacity deployments? Are they stranded or curtailed because they are not integrated into existing systems? Are the investments without financial or political risk? Are these investments going into the most cost effective technologies available?

These are all “opportunity costs” which can turn negative, particularly if they don’t pan out as was promised. I leave little to my regular reader’s imagination on where I stand as a staunch opponent of hype derived investments chasing market or political volatility for “opportunities” at the expense of carbon dioxide reductions per dollar spent.

My energy nerd pet peeves of course are storage [batteries], “solar plus storage” [CSP for electricity generation] and solar leases, where variable renewable energy nameplate capacity falls far below a threshold somewhere north of 50% of the local system demand. These three “solutions” are dependent on capitalizing on marginal events, the area under the Duck Curve’s “neck”. As our energy landscape diversifies over time, not only the supply, but also the demand, this zone of high profit margins will decrease.

And what does BNEF’s 2014 3rd Quarter report tell us about these “opportunity costs”, in particular on the losing side of the equation, as we play it forward to events that have transpired through to today? Let’s look at some of their notable occurrences during their reporting period.

No alt text provided for this image

In the “Top [5] Public Market Transactions of the Quarter”, only one, the smallest at $225 million, I would rank as minimal risk investment, and only because I know little of the transaction.

However, the other four; Telsa Motors at $750 million; TerraForm at $675 million; Sunedison at $650 million and Sunrun at $245 million for an IPO; I do believe we have seen exactly how risky these investments, totaling $2.32 billion, have turned out.

  • Tesla’s share price has plunged, just off its 52-week low of $182.76.
  • SunEdison, and its Yeildco TerraForm, are under enormous financial distress. This is due largely to its enormous debt load obtained during a buying spree of renewable energy projects, and it is now being forced to shed many of them in various stages of completion. As if this isn’t bad enough, and in my opinion, which is shared by its investors, SunEdison’s move into the highly volatile market of residential solar with its planned acquisition of Vivint was the straw that broke the renewable energy giant’s back.
  • And lastly, Sunrun’s IPO, which spiked with the announcement of the ITC extension, however on the whole remains a losing investment with events that have unfolded in Nevada offering little confidence to investors.

No alt text provided for this image

Next, we have the “Top [5] Asset Finance Transactions of the Quarter” where we see two renewable energy technologies dominate the investments; wind and CSP, referred to in the report as STEG (Solar Thermal Electricity Generation). What do the numbers tell us? Of the five projects highlighted, three are STEG for a total of 410 MW of capacity, and two are wind farms for a total of 600 MW of installed capacity. But what of their costs per MW, bearing in mind STEG is a “solar plus storage” packaged technology and wind is only generation? The wind projects averaged $2.835 million per MW, while “solar plus storage” racked up an average of $6 million per MW. Now let’s look at the geographic distribution, both wind projects are in China as well as one STEG that was double the capacity put equal the price of the other two projects in Israel and South Africa.

If you’ve followed my commentary this past year, you will know I have followed South and Southern Africa’s energy developments closely, as well as warning extensively about early investments into “solar plus storage” projects where renewable energy saturation remains well below that threshold. Spain’s internal woes, “solar plus storage” is a large component. Spain’s external woes, “solar plus storage” as well as biofuels, another “solar plus storage” technology, playing out in Brazil and the United States, but also impacting Chile, and I suspect South Africa as well.

But maybe, Spain’s internal financial woes have spilled outward and it is not directly correlated to “solar plus storage” technologies, you may suggest. That does not bear out either, as the other Spanish giant Ibedrola, which invested in U.S. “grid” [this article is written courtesy of Ibedrola owned NYSEG electricity) and wind assets are stable. The Texas based company, NRG’s 2015 experience would also lend substance to the risk of solar leases and “solar plus storage”, as the company divested itself from its “residential solar” market selling off NRG Home as well as experiencing the financial distress of the Ivanhoe STEG projects, under performing and needs to use natural gas to keep capacity factor higher than solar energy alone can provide.

I don’t intend to be “scathing” in my reporting, nor come across as opposed to renewable energy, however the level of hype that comes across my radar screen as I monitor the full spectrum of energy developments around the world, is largely born primarily by solar, solar plus storage and storage proponents. The impacts on policy decisions are also largely influenced in Western markets by these same “hypsters” and I’m continually met with indignation from their advocates at every introduction of numbers and events that do not support their positions.

Just as I repeatedly ask the important questions of oil, gas, coal or nuclear proponents, I find it important to provide critical objectivity within the landscape of renewable energies. If we want to achieve a low carbon energy future, there is little benefit to handing out rose colored glasses, offering to those wanting to comprehend the current state of affairs and obstacles, to force them into only seeing what we want them to see. The “truth” is often painted much differently than reality will support, and I find it critical to pull back the curtains across all the sectors wherever they exist.

 

[Note: Orginally published on LinkedIn Pulse on 1 Feb 2016]

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s