Approximately $US4 trillion, made up of $3 trillion in direct outlays for generating plants plus an estimated $1 trillion for renewables-related network upgrades, has been invested in electricity-sector renewable projects since 2000. As a result of these expenditures the percentage of renewable energy in the global electricity mix has risen from 19% in 2000 to 24% in 2016 and global CO2 emissions have been cut by a small but unquantifiable amount over what they would otherwise have been – not much bang for the buck. There are also questions as to whether future global investments in renewable energy, which turned flat after subsidy rollbacks began in 2011, will be sufficient to keep the renewables bandwagon rolling.

Global Renewable Energy Investment

The investment data presented in this post are from two sources. The first is the International Energy Agency, which recently published a report entitled World Energy Investment 2017 that probably contains most of the data I need to write this post. The problem is that IEA wants me to pay £80 for the full report, and while I enjoy my work here on the blog I don’t enjoy it that much. Fortunately Carbon Brief has published an article containing some of IEA’s key charts, and I digitized the data from the one entitled “Global investment in power generation and electricity networks” and plotted them up with the results shown in Figure 1:

Figure 1: World electricity sector annual investment by category, 2000 to 2016. Thermal generation includes oil, gas, coal and nuclear. Renewable generation includes wind, solar, biomass, geothermal and “other”. Carbon Brief/IEA data through 2015; 2016 data from this IEA publication .

Investment in renewables generation from 2000 through 2016 totals $3.002 trillion. (The $4 trillion total renewables investment cited in the title and elsewhere includes an additional $1 trillion invested in network upgrades to support renewable generation projects, which are not broken out in the IEA data. Details on how this estimate was arrived at are given in the Appendix at the end of the post.)

Figure 2 plots investments in renewable generation only. Between 2001 and 2011 investment grew at almost 20% a year, but after 2011 it flattened out:

Figure 2: World annual investment in renewable generation, 2000-2016. Data sources as for Figure 1.

It’s been claimed that investment flattened out after 2011 because decreasing prices for wind turbines and solar panels allowed developers to build more for less money, but this explanation does not hold water because prices had been decreasing steadily for years without having any effect on investment growth. The true explanation is that 2011 was the year in which cash-strapped governments began to water down renewables targets and cut back on subsidies. “Investment in renewable energy fell in 2012 as governments cut subsidies” as the Guardian put it in 2013. A year later in 2014 Bloomberg New Energy Finance had much the same to say about the 2013 results:

Looking at the reasons for the decline in overall investment in 2013, worries about future policy support for renewables delayed investment decisions in countries such as the US, Germany, India, the UK, France,Sweden, Romania and Poland. In some other countries, such as Spain and Bulgaria, retroactive subsidy cuts for existing projects almost killed off investment entirely, while in Italy, the amount of PV capacity eligible for support quickly ran up against a government-set cap.

In short, the rapid growth in renewables investment between 2001 and 2011 came to a halt as soon as the subsidy bubble began to burst, but more about this later.

The second data source is Bloomberg New Energy Finance, which recently published quarterly data on renewable energy investments for selected countries and regions from the first quarter of 2011 through the second quarter of 2017. These data are also not readily available, but Renewables Now has published an article containing BNEF’s key graphic, which I’ve digitized and used to prepare Figure 3. BNEF’s data also show no increase in “clean energy” investment since 2011:

Figure 3: Global new investment in clean energy. Data from Bloomberg New Energy Finance

Figure 4 presents the data for Europe, the USA, China and the rest of the world separately. European clean energy investment has been in decline since Q2 2011 and shows no sign of a recovery. Investment in the USA has remained essentially flat. Investment in China grew before Q2 2015 but has since fallen off. Investment in the rest of the world has also failed to increase. The post-2011 flattening is clearly a worldwide phenomenon:

Figure 4: New investment in clean energy by country. Data from Bloomberg New Energy Finance

The End of Subsidies

As noted above, the abrupt flattening in renewables investment after 2011 coincides with the rollback of government subsidies which occurred in that year, and there is general agreement that subsidies in one form or another are needed if renewable energy is to attract investment. As Warren Buffett famously observed :

“We get a tax credit if we build a lot of wind farms. That’s the only reason to build them ….. They don’t make sense without the tax credit.”

The BNEF 2014 report linked to above had this to say:

A high degree of price certainty – whether via established subsidy arrangements or via long-term power purchase agreements – would appear to be necessary in order to make (renewables) investment possible.

But now the government subsidy bubble has burst completely, with 48 countries, including almost all of the world’s major economies, replacing feed-in tariffs with a competitive auction system and another 27 seriously considering doing so, according to the Energy Institute at Haas . Governments adopted competitive auctions in order to drive down renewable costs, and as shown in Figure 5 they have certainly succeeded in driving down the costs of wind and solar, which have historically accounted for the lion’s share of renewable energy investment:

Figure 5: Auction prices for wind and solar generation. Data from IRENA

These cost reductions, however, are a double-edged sword. As governments save money the wind and solar industries make less. This makes wind and solar projects less attractive to investors, which in turn makes it less likely that governments will fill their auction quotas and meet their renewables targets. There are also questions as to whether some of the bidders will make any money at all at the prices they bid, even though they will get paid for all of their intermittent output without having to pay anything for the backup generation and storage services necessary to match it to demand – a chicken which at some point is going to come home to roost.

What the Future Holds

So what’s going to happen to renewable energy investment in the future? Bloomberg’s New Energy Outlook 2017 is optimistic:

Renewable energy sources are set to represent almost three quarters of the $10.2 trillion the world will invest in new power generating technology until 2040, thanks to rapidly falling costs for solar and wind power, and a growing role for batteries, including electric vehicle batteries, in balancing supply and demand.

By almost three-quarters Bloomberg means 74%, and 74% of $10.2 trillion is $7.55 trillion. Spread over the next 23 years this works out to $328 billion/year, a number not that much higher than the $265 billion/year Bloomberg estimates has been spent since 2011 (and quite possibly lower if it doesn’t allow for inflation). Bloomberg’s estimate is also based on assumptions that can only charitably be regarded as speculative:

The levelized cost of electricity from solar is set to drop another 66% by 2040 …. Onshore wind levelized costs will fall 47% by 2040 …. In the same period, offshore wind costs will slide a whopping 71% ….

And:

Utility-scale batteries increasingly compete with natural gas to provide system flexibility at times of peak demand. In conjunction with small-scale batteries, this will help renewable energy reach 74% penetration in Germany, 38% in the U.S., 55% in China and 49% in India by 2040. Electric vehicles bolster electricity use. In Europe and the U.S., EVs will account for 13% and 12% of electricity demand by 2040. Charging EVs flexibly, when renewables are generating and wholesale prices are low, will help the system adapt to intermittent solar and wind.

What do I think will happen? I have no way of making any quantitative predictions, but my guess is that investment in renewables will struggle on at levels that will be too low to allow most countries to meet their ambitious long-term renewables targets. And in some cases the failure may be self-inflicted. Germany, for example, scheduled auctions in 2014 that were designed to add enough capacity to allow it to meet its target of 40% renewable energy by 2020, but for reasons that remain unclear it has already begun to fall behind schedule :

Over the last (rolling) 12 months, Germany only installed less than 1.4 gigawatts, far below the target of 2.5 GW. But instead of adding more to close the gap, less is being auctioned: 500 MW in 2015, 400 MW this year, and 300 MW next year. Lots of people want to build more, but the government won’t let them.

Conditions for future investment in renewable energy elsewhere are also not encouraging. Trump’s election in the USA has put a damper on renewable energy development there. China recently cut subsidies after its first attempt to expand wind power resulted in unacceptably high curtailment levels. Japan is also reportedly cutting back on large-scale renewable projects. Australia is suffering withdrawal symptoms after the South Australian blackouts. Energy-powerhouse-to-be India has yet to make any real effort to expand renewables (current renewables investment there is $2 – 3 billion/year, the same as it was in 2011). At $3.1 billion/year Canada also remains a bit player. The Macron administration in France has promised legislation to stimulate renewables but has yet to adopt any. And to the extent that the UK can be said to have an energy policy the trend is away from renewables and towards nuclear.

But arguably the most negative recent development is the EU’s proposal to remove grid priority for renewable energy, which the Global Energiewende believes would kill solar and wind in the EU :

You might as well say you don’t want wind or solar

And after decades of effort and hundreds of billions of euros spent on wind and solar with little to show for it we have to consider the possibility that this may indeed be what the agencies that made the proposal (the Agency for the Cooperation of Energy Regulators and the Council of European Energy Regulators) are saying.

Return on Investment

What benefits have accrued to the world from the $4 trillion spent on renewable energy since 2000? As shown in the first graphic in Figure 6 it has increased the percentage of world electricity supplied by renewable sources from 19% in 2000 to 24% in 2016, although hydro still accounts for most of the supply. And not all of the side effects, in particular the electricity price increases and the adverse financial impacts on thermal power producers in Europe, have been beneficial:

Figure 6: Percentage of renewable and thermal generation in the global electricity and energy mixes, data from BP

The second graphic is there as a reminder that energy and electricity are not the same. When expressed as a percentage of world energy consumption renewables still fill less than 10% of world demand, and about 7% of this is contributed by hydro.

Another benefit has been a reduction in global CO2 emissions over what they would otherwise have been. There is no doubt that such a reduction will have occurred because some renewables generation will have replaced thermal generation. Figure 7 also shows a coincidence between lower CO2 emission growth and increasing percentages of renewables generation after 2007, suggesting a cause-and effect relationship:

Figure 7: Global CO2 emissions vs. percent renewable electricity, 1985-2016. BP data

But how much have renewables reduced CO2 emissions by? Knowing that coal emits ~0.9 kg of CO2 per kWh and gas and oil about half as much makes it easy to calculate the “avoided” CO2 emissions that result when renewables replace fossil fuel generation. The problem is that the bulk of the renewable generation added between 2000 and 2016 (3,004 TWh) would have gone to fill growth in global demand (9,306 TWh) and not to replace existing generation. Estimates must therefore be based on “what if” scenarios, such as what avoided emissions would have been if world demand growth had been filled 100% by coal, or by 50% coal and 50% gas, or by 30% coal, 60% gas and 10% nuclear etc. instead of by renewables. This is not a very satisfactory approach, but if we assume that all of the electricity generated by renewable capacity additions between 2000 and 2016 (19,855 TWh) was coal-fired – the scenario that generates maximum avoided emissions – we get 17.6 billion tons of avoided CO2, less than 4% of the 482 billion total tons of CO2 emitted globally over this period. Does this represent value for the $4 trillion spent? I’ll let the reader decide.

Appendix: Derivation of the $1 Trillion Estimate for Network Upgrade Investment related to Renewables Projects

The IEA estimates don’t specify how much of the $3.46 trillion invested in network upgrades between 2000 and 2016 went to support renewables projects and how much went to support thermal projects, but we can assume that the split will be at least roughly in proportion to the amount of new capacity added. According to the World Energy Council 898 GW of renewable capacity and 1,482 GW of oil, gas, coal and nuclear capacity was added between 2004 and 2014, indicating that about three-eights of the total $3.46 trillion investment, or $1.3 trillion, would have gone to support renewables.

A separate statistically-based estimate gave essentially the same result. Figure 8 is an XY plot of total network upgrade investment against renewable generation investment. The match is far from exact but the correlation is strong enough (R squared = 0.80) to suggest a causative relationship between the two, with the trend line showing a 0.35 dollar increase in network upgrade investment for every dollar increase in renewable generation investment. Factoring the $3.46 trillion of total investment by 0.35 yields $1.21 trillion in network upgrades investment:

Figure 8: XY plot of network upgrade investment against renewable generation investment, 2000-2016 annual data.

Based on these results I used a rounded-down estimate of $1 trillion for network upgrades related to renewables projects. Adding this to the $3 trillion of renewable generation investment gives the $4 trillion in total renewables investment cited in the post.