Less Money, Less Problems? Why Declining Renewable Energy Investment Might Be a Good Thing

The renewable energy pot continues to shrink -- but investors and countries may be getting more bang for their buck.

Aug 6, 2014 at 10:55AM


Source: UNEP 

Renewable energy investments are tumbling worldwide, falling even further from their 2011 high. But there's a silver lining to this clean power playbook that wise investors can use to their advantage. Here's what you need to know.

Falling investments
In 2013, renewable energy investments fell 14% to $214 billion. That's on top of 2012's 11% dip from an all-time record of $279 billion in 2011. These latest numbers are seemingly big blows to the renewable energy world, especially considering its nearly nonstop double-digit growth for the past decade.

Investment Over Time

Source: UNEP. 

But renewable energy is not your average investment. It is rapidly evolving, and in this case invested money simply isn't the best metric to measure economic confidence or growth.

Falling costs
Technology costs in the industry have been falling at impressive rates over the past few years. With more renewable bang for each buck, declining investment doesn't mean declining interest or opportunity.

Solar comprised just over half ($114 billion) of all renewable energy investments in 2013, even as solar spending fell 20% from 2012 levels. Solar played a major role in cost reductions as technological improvements and an increased focus on utility-scale projects created new cost-saving mechanisms.

Utilities' efforts to add solar to their energy portfolios have produced an unprecedented scaling opportunity. By some estimates, U.S. utilities will install more solar capacity in eight months than SolarCity (NASDAQ: SCTY), America's largest rooftop solar system installer, has managed since it was founded in 2006.

The Solar Energy Industries Association estimates that the cost of U.S. utility-scale solar has dropped from around $3/Wdc (DC Watt) in the first quarter of 2012 to $1.85 in the first quarter of 2014. In that same period, commercial solar prices declined approximately 20% to $3.72/Wdc as residential systems made a respectable 25% dip to $4.56.

Wind cost reductions have also spurred projects worldwide. Overall costs have dropped 90% since 1980, and wind energy is now cheaper than many conventional fuels. New projects have been popping up all over breezier parts of the U.S.. In India, wind is now cost-competitive with coal, and in Australia wind holds its own against both coal and natural gas. That all helps explain why, even with cost improvements, wind investments declined just 1% to $80 billion for 2013.


Source: UNEP. 

The real renewables deal
When it comes to renewable energy, invested dollars is an outdated metric. Despite continued declines in absolute investment, renewables accounted for 44% of all-new generating capacity installed worldwide in 2013.

Once again, solar stood out as a shining star among renewables. Global photovoltaic capacity increased by 39 gigawatts in 2013, even though it was installed at a lower overall cost than 2012's 31 GW worth of contribution. That boost helped renewables expand its slice of the energy pie from 7.8% in 2012 to 8.5% last year.

The location of last year's renewable energy investments gives a further clue to future growth opportunities. For the first time ever, China out-invested Europe for renewables.

Europe's spent dollars plummeted 44% to $48 billion as it continued to absorb the effects of a struggling economy and subsidy expirations. While China's investment also fell, its 6% decline kept overall renewables spending at $56 billion.

Although Japan isn't a renewables stalwart yet, 2013 also marked a major shift in energy policy for the island nation. With its nuclear energy future in flux, Japanese renewables investments jumped 80% in a single year to $29 billion.

It's more than money
Renewable energy is making a name for itself worldwide. With lower costs and increasingly strategic investments, wind, solar, and other clean energies are carving out sustainable places for themselves in national energy and individual investor portfolios. Declining dollars for renewable energy investment isn't a bad thing -- it's a blessing in disguise.

Justin Loiseau has no position in any stocks mentioned. The Motley Fool recommends SolarCity. The Motley Fool owns shares of SolarCity. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

4 in 5 Americans Are Ignoring Buffett's Warning

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Jun 12, 2015 at 5:01PM

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David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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