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Downturn takes a heavy toll on investments in clean tech

Downturn takes a heavy toll on investments in clean tech

New Delhi: The economic downturn has hit investment in clean energy projects, increasing the gap between expectations and commitments to save the planet.

New investment in clean energy has plummeted to $13.3 billion in the first quarter 2009, a decline of 44% over the previous quarter and of 53% compared to the first quarter of 2008, says a new report by New Energy Finance, a UK-based organization that provides industry information and analysis to investors, corporations and governments on clean energy and carbon markets.

This decline in investments comes in the run-up to the United Nations climate change conference in December in Copenhagen which will thrash out an agreement on what replaces the Kyoto Protocol.

The protocol aims to reduce greenhouse gas emissions by 2012. It has set targets for industrialized nations to reduce their pollution levels. It includes developing countries through the clean development mechanism, which allows developed countries to invest in clean energy projects in the developing world.

The International Energy Agency’s World Energy Outlook 2008 calculates that around $550 billion is required in renewable energy and energy efficiency alone annually till 2030, if the world wants to rescue itself from irreversible damage, while the 2006 report by economist Nicholas Stern on the economics of climate change puts it at $500 billion a year.

Overall global investment in clean energy had reached $155 billion in 2008, up slightly from $148 billion in 2007, according to New Energy Finance data.

“More expensive debt since the financial crisis has curbed installation of clean energy projects but to no greater extent than any other investment," said Nakul Zaveri, senior consultant, Climate Change Capital, a UK-based company that raises and deploys capital for low carbon activities around the world.

The same report added that asset finance of new-build projects—such as wind farms, solar parks and biofuel plants— stood at $11.5 billion in the first quarter of 2009, down 44% from the fourth quarter of 2008 and 50% from the corresponding quarter of last year.

Even for countries that have taken up commitments under the Kyoto Protocol, financial investments don’t look very upbeat. For instance, the UK, which has set itself the world’s most ambitious target, has invested a mere $200 million in the first quarter and is currently ranked at 15, compared with $3.7 billion in 2008. The UK has committed to generating 15% of its energy from renewable sources by 2020.

“The economic downturn has hit us very hard. But you have to walk the talk. The British government’s carbon budgets are part of legislation, they have to be met and the government will be held accountable. The UK government is not looking at greenwash but at what kind of obstacles you need to overcome to achieve that investment," said Fergus Auld, first secretary, climate change and energy, British high commission in Delhi.

India, on its part, invested a total of $4.1 billion in clean energy in 2008 and was ranked at the seventh position last year. However, it didn’t even figure in the top 15 (these numbers include venture capital, private equity, public markets and asset finance) in the first quarter of this year.

In terms of green stimulus packages though, the biggest surprise of all is South Korea, which has dedicated a whopping 81% of its stimulus package to green projects during the quarter, followed by the European Union (59%) and China (38%) and the US at a low 12%. In terms of volume, however, China tops the list at $221.3 billion in green projects followed by the US at $112.3 billion.

“The greening of economic stimulus packages globally is encouraging...investment in the sector and renewable energy companies could still provide substantial returns for private equity investors this year as those with real growth potential survive the economic slow down," said Zaveri.

However, apart from the bleak investment in clean energy, the projection that half of industrialized nations which have taken up targets for carbon dioxide emissions are set to miss them, doesn’t inspire confidence among other countries.

“What we can hope from Copenhagen is a skeletal framework; a political deal which can work out later rather than an overambitious deal about which no one does anything," said a New Delhi-based climate policy analyst, who didn’t want to be identified.

Meanwhile, the latest US position doesn’t specify any emission cuts for itself nor a deadline. Instead it reiterates earlier position that India and China need to take action akin to the EU position which asks for a 15-30% cut below “business as usual" levels of carbon dioxide by 2020.

And just like the EU position, the US also does not specify any number on exactly how much they are ready or will be to commit as financial transfers to countries such as India and China.

“Unlike India, climate change is a political issue with the Western world. But with the financial crisis it’s becoming less of an issue, which is the scariest part," said the analyst.

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