Commentary: Decline in renewables investment is a warning signal for clean energy transitions

Mike Waldron

By Michael Waldron
Energy Investment Analyst
24 July 2018

Global renewable power capacity additions rose to a new high in 2017, supported by a more than 25% expansion in solar PV installations (Photograph: Shutterstock)

Global investment in renewable energy declined by 7% in 2017, its largest fall in over 15 years, as reported in the IEA’s World Energy Investment report.

Although part of the drop-off was due to falling costs that made renewable sources like solar PV more affordable than ever, the investment decline still represents a warning.  

Renewables are an essential component of a sustainable energy future, and they will have to grow quickly to meet the world’s climate change, clear air and energy access goals. As projected in the IEA Sustainable Development Scenario, new renewables generation needs to rise rapidly and global investment in renewable electricity needs to almost double to meet these goals, to nearly USD 550 billion per year by 2030.

At first glance, 2017 was a very good year for renewables, which accounted for a record two-thirds of power generation investment. Global renewable power capacity additions rose to a new high, supported by a more than 25% expansion in solar PV installations and record growth in offshore wind. Output from the total installed base of renewable power, influenced by annual resource availability as well as new development, rose by 6%.

	Solar PV	Wind	Hydro and other renewables	Renewable capacity additions (right axis)
2012	103.568	92.779	94.23982992	119.624514
2013	110.614	61.136	111.2410543	120.5332101
2014	105.057	84.768	88.91807264	132.9911211
2015	102.867	114.269	89.38541951	157.7078441
2016	133.063	91.376	93.89899067	172.1626118
2017	144.328	85.203	67.97793963	175.5565015
"title":{"text":"Renewable power investment by technology and gross capacity additions"},
"yAxis":[{"reversedStacks":false,"min":0,"max":350,"title":{"text":"USD (2017) billion"}},{"min":0,"max":200,"title":{"text":"GW"},"opposite":true}],
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Capital costs continued to fall, by nearly 15% for solar PV and by 5% for onshore wind, indicating that we are indeed buying more for less. While better pricing for key technologies, such as PV modules, supported these economies, there was also a shift in deployment towards regions with lower installation costs.

These factors have supported generation-cost reductions – and in emerging economies, increased scale – for projects awarded in renewable auctions. Cheaper debt and bigger turbines have helped lower generation costs for offshore wind in Europe.

The perceived maturity of renewables and better risk management is also facilitating more off-balance sheet financing structures, from a diversity of financial sources, beyond the United States and Europe. These trends are creating more opportunities globally.

But data for 2017 also reveal warning signs for trends in capacity, new generation and future investment, in part due to a concentration of deployment in markets with policy uncertainty, such as China.

In 2017, total renewable power capacity additions essentially levelled off, growing at only 2%. By contrast, capacity additions grew at a 13% average annual growth rate during 2014-16. The reason for the decline was the commissioning of fewer onshore wind and hydropower plants which, compared with solar PV, produce more energy per unit of capacity.

As a result, the new annual electricity generation expected from the renewable investments of 2017 points to a decline of 7% compared with the investments of the prior year, in contrast to the modest growth in capacity additions.

	Solar PV	Wind	Hydro and other renewables	Nuclear	Demand growth
2012	35.59137664	112.8451432	151.6633585	49.36698	429.635
2013	46.63432084	72.35432784	193.2450301	92.285724	620.003
2014	53.27236122	107.762814	169.7562751	119.984844	411.492
2015	62.99609794	153.137536	156.9814745	167.482878	381.2889257
2016	103.5323435	119.3642587	179.2961491	104.660976	577.6802446
2017	135.3010212	110.5432304	130.1330096	82.35276	642.1275758
"title":{"text":"Expected new annual generation from low-carbon power investments vs electricity demand growth"},
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Robust investment in renewable power is even more important for boosting low-carbon power generation in light of a sharp fall in investment in new nuclear power. In some regions, retirements of existing nuclear plants are reducing the impact of new renewables.

Putting all low-carbon power generation investments together, their expected new annual output fell by 10% in 2017, the second straight year of decline, and did not keep pace with demand growth. This spells a worrying trend for power sector-related CO2 emissions, which grew by 3% in 2017, on the back of a rise in China and India, where renewables deployment was large, but coal power filled the supply-demand gap.

These warning signs underscore the importance of more targeted and stable government policy efforts to facilitate investment, across a portfolio of technologies, in line with sustainability goals, and with capital from a diverse set of industry and financial actors, including public financial institutions.

Governments also need to ensure the value of these investments, through greater system flexibility, and manage the impact on consumers. Encouragingly, more spending is now going into electricity networks, smart grids and battery storage, which is contributing to a more flexible power system – crucial to the integration of higher shares of solar PV and wind.

Finally, stronger support is needed for investment in electrification of transport and heating, powered by clean sources and the direct use of renewables in these sectors.