Last year, renewable energies accounted for 35% of Europe’s power generation (in GWh) compared to 13% in the US, while fossil fuels represented 38% of electricity generation in Europe, compared to 68% in the US. However, these market shares are likely to rise due to an expected increase in global investments in renewables, despite the extended period of low oil prices.
Indeed, the evolution of oil prices has negatively affected the pace of renewables growth, given that the correlation between the oil price and investment in renewable energy ended in 2013.
In total, investments in renewables have grown by 10% on a yearly average since the oil price collapsed by 60% in 2014, reaching an all-time high of US$286bn in 2015. However, this trend does not impact on the different renewables in the same way. Since then, most investment has been in renewables: solar (US$110bn in 2015, up 80% on 2007) and wind (US$161bn, up 313%).
Investments in other renewables however, such as biofuels, biomass and hydropower, have dropped by 15% on a yearly average between 2008 and 2015, to US$20bn, accounting for less than 6% of the total annual investments in renewable energies as a whole.
Biofuels have suffered from the 2008 bubble. With a very expensive feedstock price, investments in biofuel renewables plummeted by a yearly average of 11% between 2005 and 2015.
Renewable biomass was unable to withstand any obstacles since the start of this decade, which is why from 2005 to 2015 investments in biomass renewables dwindled by a yearly average of 3%.
The problem with hydropower is simple. At global level, there are a few new locations available where dams can be built. Water supply is also a significant issue along with political squabbles between countries, when they are not at war with each other. This explains why new investments in hydropower dropped by 6% on a yearly average for the period 2005-2015.
A breath of fresh air for the wind sector
Over the past ten years, operating margins in the wind power sector have been unable to achieve more than a yearly average of 5%. Moreover, the restructuring plans implemented in wind power companies explains why the net margin has taken three years to get back into the black. The recovery of these net margins, expected to stand at around 5% in 2016, has been the consequence of debt relief over the past two years. As such, gearing should be less than 20% by the end of the year.
The solar sector still needs to leave its past behind
The solar industry has experienced three consecutive years of devastating financial losses since 2011. A return to the previous operating level of over 20%, has moreover proven difficult, except for 2009. In 2013, average gearing of the solar sector skyrocketed to an all-time high of 140%. This explains why the net margin plummeted so deeply in 2012. Restructuring plans, particularly in Western countries, have only aggravated the situation. The recovery of previous operating margins will be complicated as gearing is expected to remain at the high level of 85% this year.
Investor appetite returns
Financial investors appear to have cautiously regained confidence, with the past two years showing that investments in renewables have once again increased. Global investments are expected to exceed US$327bn in 2017.
Investments in renewable energy in developed countries should grow by 3% every year between 2014 and 2017, while developing economies expect to see a growth of 18% per year over the same period. Asia has become a significant player, in 2014 equalling developed nations with the amount invested in renewables. The region’s progress in this sector is expected to speed up in the medium-term.