Special Report March 16, 2010, 4:10PM EST

Clean Energy's Bright Rebound

The financial crisis savaged clean energy investment early in 2009, but Asian wind projects and government stimulus are fueling fresh optimism

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The last year-and-a-half have taken the clean energy industry on a roller-coaster ride. Among the minuses, the sector suffered from a shortage of financing for projects such as wind farms and solar parks and there was last December's disappointing outcome of the Copenhagen climate change conference. Among the pluses, prices of renewable energy technologies fell sharply, improving renewable energy's cost-competitiveness, and major countries announced $184 billion worth of "green stimulus" programs.

The outlook for clean energy in the next decade—and the development of appropriate policy mechanisms to bring about curbs on carbon emissions—will be key areas of focus at the annual Bloomberg New Energy Finance Summit in London from Mar. 17-19. The event brings together 300 clean energy and carbon leaders from global industry, the investment community, and government.

Clean energy investment was down in 2009 but proved surprisingly resilient. For much of the year it appeared that investment activity in clean energy would come in well below 2008 levels, but 2009 ended with total clean energy investment of $145 billion, a mere 6.5% drop from the record $155 billion invested the year before.

The pace of spending last year varied widely by region. New financial investment—excluding small distributed projects and corporate and government research, development, and deployment (RD&D)—fell 15% in the Europe, Middle East, and Africa (EMEA) region and 26% in the Americas, but increased in Asia-Oceania by nearly 25%, driven mainly by the wind sector. For the first time, new financial investment in clean energy in Asia-Oceania (amounting to $37.3 billion) outstripped that in the Americas ($29 billion). Europe, the Middle East, and Africa continued to lead the world with $45.3 billion invested.

resurgence in clean energy investment

The period from 2004 to 2008 saw a surge in global clean energy investment, from $33 billion to $155 billion. By the second half of 2008, the financial crisis stalled the industry's rapid growth. The low point came in the first quarter of 2009, when financial investment in clean energy was more than 50% below a peak it had reached just over a year earlier.

Investment activity recovered quickly, driven by rapid growth in China, the funding of some big, long-awaited, offshore wind farms, and a steady upturn in the financial markets. Prompt action by a number of development banks and a trickle of money from government stimulus programs spurred private sector activity, albeit at a slower rate than in previous years.

By the end of 2009, total financial investment in clean energy (excluding RD&D) was $112 billion (compared to $122 billion in 2008), with investment averaging $31 billion in the second, third, and fourth quarters. The recovery mainly came from pockets of investment focused on specific technologies and countries, such as wind megabases in China, offshore wind farms in the U.K., and solar thermal electricity generation plants in Spain. Asset financing for clean energy projects accounted for $92 billion of the total 2009 investment of $145 billion, while equipment manufacturers and technology companies raised $13 billion from the public markets and $6.6 billion from venture capital and private equity investors. Government and corporate R&D spending, plus small scale projects, accounted for the remaining investment.

Government Green Stimulus

Government stimulus funding has supported investment volumes in 2009, although to a lesser extent than expected. HSBC (HBC) estimates that governments allocated more than $430 billion in fiscal stimulus globally for "climate change themes." However, this total includes money for rail, water, and electricity infrastructure not specifically dedicated to clean energy.