Based on a report by IEEFA
Renewable energy is one of the few industries that may anticipate increased investment inflows in 2020. Despite the ongoing COVID-19 epidemic, which has had a significant impact on investments, investors committed a record US$501 billion to low-carbon assets in 2020, up 9 percent from the previous year.
Renewable energy investment has surpassed US$250 billion for the seventh year in a row (excluding large hydro investments). The primary drivers of capital mobilisation into renewable energy infrastructure build-out have been a large increase in solar energy installation and a US$50 billion increase in offshore wind generating projects.
Despite the significant uptake in offshore wind power projects, solar power projects received investment of US$147 billion in 2020. Wind power investment fell by 6 percent to US$143 billion. The investment patterns in renewable energy show a stable and constant flow of capital into decarbonisation projects.
With an 82 percent increase in energy consumption since 2010, renewable energy sources (solar, wind, hydro, etc.) are anticipated to become the single greatest source of energy globally, growing at a startling pace of 137 percent through 2050. To fulfil this growth potential, it is possible that US$55 trillion in investment will be required.
In 2020, total renewable energy installation reached a new high of 260 GW. Despite the COVID-19 pandemic, this is a 50 percent increase above the previous record. In comparison, total fossil fuel capacity fell from 64GW in 2019 to 60GW in 2020. Renewable Energy currently accounts for one-third of total power capacity and one-quarter of global power generation
Since 2009, the levelized cost of wind and solar energy has decreased by 70 percent and 90 e, respectively. These are presently the most affordable power sources, and in certain situations, they are replacing or undercutting existing conventional carbon-intensive power sources. Long-term fee-based contracts practically ensure revenue from renewable energy plants. In the last five years, the sector has provided good risk-adjusted returns with reduced volatility when compared to other income-oriented stocks as well as wider US equities.
Figure 4: Global Investment in Energy Transition by Country, 2020
Despite a 12% drop to US$135 billion, China was the greatest investor in energy transition infrastructure in 2020. The United States came in second, investing $85 billion in the industry by 2020. China spent $84 billion in renewable energy capacity and $45 billion in transportation electrification.
The United States also experienced an 11% drop in investment in energy transition industries, totaling US$85 billion. While renewable investment decreased by 20% to US$49 billion, investment in electric transportation increased by 3% to US$18 billion.
Due to green stimulus programmes, European nations drove much of the growth in energy transition investment in 2020. These countries spent US$166 billion in low-carbon industries, which is 67% higher than the previous year’s investment and more than China and the United States combined.
India, which has been one of the top destinations for solar investment, experienced a 72% decrease in solar installations in 2020, as well as the slowest installation of wind power projects in ten years.
Energy Transition Investment: Actions and Promises
Over 100 nations have signed on to the Paris Agreement and promised to achieve carbon neutrality over the next 30 years. However, although policymakers and governments can create a favourable regulatory environment to support emission reductions and green investment, commercial investors’ commitment to climate change goals is crucial to speeding the energy transition.
IEEFA examined the coal, oil, and gas divestment plans of hundreds of globally significant financial institutions (GSFIs). 172 of these GSFIs had an exclusion policy for coal-based projects and 77 had an exclusion policy for unconventional oil and gas exploration or production. While many GSFIs have less severe fossil fuel divestment plans, IEEFA sees clear market-based momentum growing toward systematically decreasing investment in carbon-intensive assets.
Decarbonisation also necessitates substantial investment in energy transition infrastructure. The Glasgow Financial Alliance for Net Zero (GFANZ) will raise the trillions of dollars needed to establish a global economy with zero emissions in order to meet the Paris Agreement’s decarbonisation target. There has been a significant increase in the number and variety of climate financing funds, and these funds are generating record sums of capital. Climate-focused mutual funds and exchange-traded funds nearly quadrupled in size to US$177 billion in 2020.
Top 10 Global Debt Investors Leading Financing of Renewable Energy
Given that debt investors hold assets worth hundreds of billions of dollars, debt investment will be essential in meeting the Paris Agreement’s decarbonisation objective.
Table: Lead Arranger Ranking Related to Renewable Energy Projects (FY2020)
Last year, these ten banks lent a total of $30 billion to renewable energy projects. European commercial banks and three Japanese banks dominate the top ten ranking.
- Sumitomo Mitsui Banking Corporation Group, Japan
SMBC Group is Japan’s second biggest financial organisation in terms of asset size, with assets of US$2.07 trillion. In 2018, the company invested $4.77 billion in renewable energy projects. It supplied a total debt of US$3.2 billion to renewable energy projects and finished third in the BNEF league table in 2019. As of March 2020, the group had issued various green bonds totaling US$2.03 billion. Furthermore, the organisation has set a target of spending US$92 billion in green finance projects in the current decade.
- Banco Santander SA, Spain
Banco Santander has €1.5 trillion in assets and has participated in over 793 renewable energy finance transactions, investing more than €32 billion in the previous decade. Santander and KeyBanc Capital Markets Inc. completed a US$333 million loan financing for a 215MW solar power generation project in Fresno County, California, in April 2020. Santander also granted NextEnergy Capital with a credit line of US$139 million (£100 million) in May 2020 to fund solar PV projects in the UK.
- Mitsubishi UFJ Financial Group Inc, Japan
MUFG, with total assets of about US$3 trillion, is one of the world’s top commercial banks funding renewable energy infrastructure. MUFG is ranked third among global financial institutions in terms of renewable energy investment, according to BNEF estimations.
In 2020, it will have funded 66 renewable energy projects with a total investment of $3.9 billion.
- CaixaBank, Spain
CaixaBank is Spain’s third largest bank, with €445 billion in assets. CaixaBank, like other large European banks, has a strict exclusion policy against significant carbon-intensive fossil fuel firms, such as those involved in coal power generation, coal mining, oil sands development or production, and oil and gas exploration or production in the Arctic area.
- BNP Paribas SA, France
BNP Paribas is a renewable energy project investor. According to the BNEF clean energy league table, they gave a total of €3.03 billion in direct loans to wind and solar projects as asset finance or refinancing in FY2020. BNP Paribas, on the other hand, reported total renewable finance of €17.8 billion in FY2020, which may include investments in stocks, secondary market bonds, or private equity in renewable companies.
- Societe Generale SA, France
Societe Generale has committed US$143 billion to funding energy transition projects between 2019 and 2023. Since 2009, the company has been investing in renewable energy projects all around the world. Infranews placed it first and second in funding renewable energy projects in Europe, the Middle East, and Africa (EMEA) in 2020 and 2019, respectively. In 2019, the organisation raised US$32 billion for renewable energy projects, as well as an extra US$98 billion through green bonds.
- Coöperatieve Rabobank, Netherlands
Rabobank’s assets exceed $900 billion. It is one among the top ten renewable energy funders, with a total investment of US$2.9 billion over 55 projects in 2020. Furthermore, in 2020, it had $19.5 billion in sustainable assets under management, $7.5 billion in sustainable finance, and $62.4 billion in total sustainable financing.
- Mizuho Financial Group Inc, Japan
Mizuho is one of Japan’s top five banks, with total assets of $2.6 trillion, and a prominent supplier of finance for renewable energy projects. Mizuho contributed $1.85 billion in project finance as a lead arranger in the renewable energy industry in 2019, a 55 percent increase over its participation in the sector in 2018. It was rated 22nd overall in the BNEF’s Clean Energy League Table in 2020.
- Credit Agricole Group, France
Credit Agricole has arranged $17.5 billion in cash for sustainable and green bond investing. It established Unifergie, a subsidiary business, to finance the energy transformation projects of Credit Agricole’s clients. For the past 20 years, Unifergie has provided unique financing solutions for a wide range of renewable energy technology. It sponsored 20.5GW of renewable energy projects in 2015.
- ING Groep NV, Netherlands
ING is the Netherlands’ largest financial services firm. ING has a strict policy on the funding of significant carbon-intensive fossil-fuel projects. The company raised its renewable energy funding to €1.19 billion in 2019 while reducing its direct exposure to coal-fired power projects by 43%. According to ING’s Terra Progress Report, 55 percent of its portfolio’s production is low-carbon electricity generation.
Global Equity Investors
- Amundi Asset Management: Amundi, a subsidiary of the Credit Agricole Group, is the largest asset manager in Europe and ranks in the top ten in the world in terms of assets under management. It manages assets of €1.73 trillion, including €378 billion (22 percent of total AUM) in responsible investing.
- BlackRock: With an AUM of $8.7 trillion, BlackRock is the world’s largest asset manager. BlackRock has only lately begun to pay attention to the financial dangers and rising investment possibilities posed by climate change. It has now incorporated ESG strategies into all of its US$2.5 trillion in actively managed assets and established the largest ETF with an ESG focus, attracting around US$1.25 billion from investors.
- Brookfield Asset Management: Brookfield Asset Management, based in Canada, is one of the world’s most successful infrastructure investment management firms, with a US$600 billion AUM spread across many asset classes. In more than 30 countries, it has investments in infrastructure, real estate, renewable energy, private equity, and fixed income assets.
- Canada Pension Plan Investment Board: CPPIB, Canada’s largest pension asset manager (AUM C$457 billion), has been involved in renewables since 2017, when it bought two operating wind farms in Brazil through a joint venture with Votorantim Energia. It is one of the top pension funds in the world that is actively investing in renewable energy. In addition, CPPIB was named the world’s largest infrastructure investor in 2020.
- Caisse de dépôt et placement du Québec (CDPQ): CPDQ is Canada’s second biggest pension asset management, with a C$340 billion AUM. CDPQ’s renewable energy investments accounted for up to 4% (C$13.6 billion) of total portfolio value as of December 2019.
- Copenhagen Infrastructure Partners: CIP is one of the largest specialist fund managers in greenfield renewable energy infrastructure projects in the world. From €1 billion in 2012, the fund has expanded to €15 billion in investment commitments to date. It was the world’s first large-scale, dedicated fund for utility-scale greenfield renewable projects in two decades.
- Cubico Sustainable Investments: Despite being a relatively new firm, CSI has amassed a portfolio of approximately 4.3GW of renewable energy assets spread over more than 13 countries, including developing and frontier nations such as Brazil, Mexico, Colombia, and Uruguay. Furthermore, it was initially financed by a US$2 billion investment from three major financial organisations.
- Global Infrastructure Partners: GIP invests in firms in the energy, natural resources, power production, transportation, water, waste management, and manufacturing industries. It now has US$71 billion in assets under management (AUM) and invests in some of the largest renewable energy firms, including ACS Renewables, which manages solar and wind power production facilities in Spain.
- Kohlberg Kravis Roberts: KKR is one of the world’s largest investment organisations, handling investments in private equity, energy, infrastructure, real estate, and capital markets throughout the world. It has been investing in renewable energy projects for over a decade and has invested in over 10.5GW of renewable energy assets.
- Macquarie Group: Macquarie and its managed funds were early investors in renewable energy infrastructure, investing more than US$46 billion of its US$116 billion in infrastructure assets (out of a total AUM of US$420 billion). It has provided finance for over 12.8GW of renewable energy projects throughout the world. In the fiscal year 2020, Macquarie invested or organised $7 billion in renewable energy.
In this report, IEEFA focuses on decarbonisation investment prospects, i.e., global capital moving into the construction of low carbon infrastructure assets, particularly asset level investment in renewables infrastructure. They highlight worldwide business investors who are actively investing in renewable energy infrastructure globally. They highlight the top ten global commercial banks’ most recent renewable energy investment operations, according to Bloomberg New Energy Finance’s (BNEF) Clean Energy League Table for 2020. They cover the renewable energy investment operations of a varied group of ten world-class equity investors.
The above report extract is based on IEEFA’s report on Global Investors Move Into Renewable Infrastructure . The full report can be accessed by clicking here