In 2004, about $30 billion was invested in renewable energy capacity and installations. (See Figure 10.)



An additional $4–5 billion in new plant and equipment was invested in 2004 by the solar PV manufacturing industry, and at least several hundred million dollars was invested by the ethanol industry in new production plants. These numbers compare to roughly $110–150 billion invested annually in power generation worldwide. Thus, renewables are now 20–25 percent of global powersector investment. Indeed, the International Energy Agency, in its most recent World Energy Investment Outlook, estimates that fully one-third of new power generation investment in OECD countries over the next thirty years will be renewable energy. Annual renewable energy investment has grown steadily from about $7 billion in 1995. Investment shares in 2004 were roughly $9.5 billion for wind power, $7 billion for solar PV, $4.5 billion for small hydro power, $4 billion for solar hot water/heating, and $5 billion for geothermal and biomass power and heat. In addition to these investments, an estimated $20–25 billion is being invested in large hydropower annually.[N12]

Renewable energy investments now come from a highly diverse range of public and private sources. Investment flows are being aided by technology standardization and growing acceptance and familiarity by financiers at all scales, from commercial finance of hundred-million-dollar wind farms to household-scale micro-financing. One of the most recent trends is that large commercial banks are starting to notice renewable energy investment opportunities. Examples of large banks that are "mainstreaming" renewable energy investments are HypoVereins Bank, Fortis, Dexia, Citigroup, ANZ Bank, Royal Bank of Canada, and Triodos Bank, all of which are very active in financing renewable energy. Investments by traditional utility companies, which historically as a group have been slow to consider renewables investments, are also becoming more "mainstreamed." Examples of utilities active in renewable energy include Electricité de France, Florida Power and Light (USA), Scottish Power, and Endesa (Spain).*1
Other large investors are entering the renewable energy market, including leading investment banks. There is a growing belief in the mainstream investment community that renewable energy is a serious business opportunity. For example,Morgan Stanley is now investing in wind power projects in Spain. Goldman Sachs, one of the world’s largest investment firms, bought Zilkha Renewable Energy, a winddevelopment firm currently developing 4 GW of wind capacity in the United States. GE commercial and consumer finance arms have started financing renewable energy. And commercial re-insurers are developing new insurance products targeting renewable energy.

Venture capital investors have also started to notice renewable energy.Venture capital investments in U.S.-based clean energy technology companies totaled almost $1 billion in 2004. In particular, solar PV saw a 100-percent compound annual growth in venture capital and equity investment from 2001 to 2004.Venture capital is being driven partly by future market projections, some of which show the solar PV and wind industries growing to $40–50 billion each sometime during 2010–2014.[N13]

Financing by public banking institutions has played an important role in stimulating private investments and industry activity. The European Investment Bank is the leading public banking institution providing finance for renewable energy, with finance averaging $630 million per year during the three-year period 2002–2004 (almost all for projects in the EU). The European Investment Bank plans to double its share of energy-sector loans to renewables between 2002 and 2007, from 7 percent to 15 percent by 2007. The bank also plans to increase renewable powergeneration lending to 50 percent of total financing for new electricity-generation capacity in the EU by 2008–2010, up from the current 15 percent.[N14]

Multilateral, bilateral, and other public financing flows for new renewables in developing countries have reached almost $500 million per year in recent years. A significant portion of these funds supports training, policy development, market facilitation, technical assistance, and other non-investment needs. The three largest sources of funds have been the German Development Finance Group (KfW), the World Bank Group, and the Global Environment Facility (GEF). KfW approved about $180 million for renewables in 2004, including $100 million from public budgetary funds and $80 million from market funds. The World Bank Group committed an average of $110 million per year to new renewables during the three-year period 2002–2004.*2 The GEF allocated an average of $100 million each year from 2002 to 2004 to co-finance renewable energy projects implemented by the World Bank, United Nations Development Programme (UNDP), United Nations Environment Programme (UNEP), and several other agencies. Indirect or associated private-sector financing is often equal to or several times greater than the actual public finance from these agencies, as many projects are explicitly designed to catalyze private investment. In addition, recipient-country governments also contribute co-financing to these development projects.[N15]

Other sources of public financing include bilateral assistance agencies, United Nations agencies, and the contributions of recipient-country governments to development assistance projects. Several agencies and governments are providing aid for new renewables in the range of (typically) $5–25 million per year, including the Asian Development Bank (ADB), the European Bank for Reconstruction and Development (EBRD), the Inter-American Development Bank (IDB), UNDP, UNEP, the U.N. Industrial Development Organization (UNIDO), Denmark (Danida), France (Ademe and FFEM), Germany (GTZ), Italy, Japan (JBIC), and Sweden (SIDA). Other donors contributing technical assistance and financing on an annual basis include the U.N. Food and Agriculture Organization (FAO), Australia (AusAid), Canada (CIDA), the Netherlands (Novem), Switzerland (SDC), and the United Kingdom (DFID). Some of these donors are establishing specific-purpose investment funds and credit lines that combine additional private financing.[N15]

These public investment flows have remained relatively constant over the past few years, although recent commitments by a number of organizations suggest the total will increase in the coming years. In 2004, at the Renewables 2004 conference in Bonn, Germany, 170 countries adopted the Bonn Action Programme, with many future commitments by governments, international organizations, and non-governmental organizations. (See Sidebar 1.) At the same time, the German government committed 500 million euros over five years to KfW for renewable energy and energy efficiency investments in developing countries. Also in 2004, the World Bank Group committed to double financing flows for new renewables and energy efficiency within five years, which would add another $150 million in annual financing for renewable energy. The EU, together with the Johannesburg Renewable Energy Coalition (JREC), will establish a "Global Renewable Energy Fund of Funds" to provide patient equity capital, with initial financing of about 75 million euros.

Local financing sources for renewable energy in developing countries, once the province of international development agencies, have also been growing. There is an increasing emphasis by donors and market facilitators on helping to increase these local financing sources for renewable energy and finding ways to mitigate financing risks for private investors. One of the best examples is the India Renewable Energy Development Agency (IREDA), which has provided almost $1.5 billion in financing for 2.5 GW of renewables since its inception in 1987. On the rural side, Grameen Shakti in Bangladesh, a local purveyor of credit and sales of rural solar home systems, is one of the best known examples. There are many others. The Development Bank of Uganda is providing rural micro-loans with support of the Shell Foundation. UNEP, the U.N. Foundation, and E+Co are experimenting with approaches to financing small- and medium-scale renewable energy enterprises through the Rural Energy Enterprise Development (REED) program in Africa, Brazil, and China. Triodos Bank’s "Renewable Energy for Development Fund" provides seed capital, loans, and business development support for renewable energy entrepreneurs in Asia and Africa. In 2003, two of the largest commercial banks in India, Canara and Syndicate Banks, together with their regional associate banks, started to provide thousands of loans for rural households to use renewable energy, offered through 2,000 participating bank branches in two states. In general, capacity building for financial services for households and businesses has become a higher priority of many agencies.

These financing flows are augmented and facilitated by the efforts of many other industry associations, non-governmental organizations, international partnerships and networks, and private foundations. These so-called "market facilitation organizations" number in the hundreds and are active worldwide and locally. (See Note 45 for a listing of websites.) Five examples of international partnerships are the Global Village Energy Partnership (GVEP), the Renewable Energy and Energy Efficiency Partnership (REEEP), the Global Network on Energy for Sustainable Development (GNESD), the UNEP Sustainable Energy Finance Initiative, and the REN21 Renewable Energy Policy Network. Government support for renewable energy was on the order of $10 billion in 2004 for the United States and Europe combined. Such support can take several forms. "On-budget" support includes such mechanisms as research and development funding, direct investment, capital-cost subsidies, tax credits, and export credits.*3 Research and development is a significant part of on-budget support, averaging $730 million per year during 1999–2001 for all International Energy Agency countries. "Off-budget" support includes the costs of market-based incentives and regulatory mechanisms that do not materially affect government budgets (for example, feed-in laws and renewables portfolio standards). The European Environment Agency estimated at least $0.8 billion in on-budget support and $6 billion in offbudget support for renewable energy in Europe in 2001. A large share of the off-budget support was due to feed-in tariffs, with purchase obligations and competitive tendering representing other forms of off-budget support. In the United States, federal on-budget support for renewables was $1.1 billion in 1999, including federal ethanol tax exemptions of $720 million and $330 million in RD&D. By 2004, RD&D spending declined but ethanol tax exemptions increased to $1.7 billion, which along with the production tax credit (perhaps another $200 million) increased total on-budget support to over $2 billion per year. U.S. statelevel policies and programs, including public benefit funds providing an estimated $300 million per year (off-budget), might add another $1 billion dollars or more. In comparison with these figures, total energy subsidies/support for fossil fuels on a global basis are suggested by the United Nations and the International Energy Agency in the range of $150–250 billion per year, and for nuclear about $16 billion per year.[N16]