Once consigned to the most environmentally conscience of enterprises, renewable energy has evolved into something with mass appeal and a growing number of companies, keen to demonstrate their green credentials, are adopting it as an alternative source of energy. Indeed, renewable energy is playing a growing role in mainstream energy markets. According to The fDi Report 2012, years of large-scale government tax incentives and subsidies have powered the sector’s rising popularity.
“Most European governments have shifted to renewable energy, and the incentive system is strong,” says Sigieri Diaz Pallavicini, CEO of Denmark-based renewable energy specialist Greentech Energy Systems. “There is a strong demand in Europe, which is shifting from traditional energy sources, and renewable energy is gaining pace. Many countries such as Germany, and France, are setting 40% targets for renewable energy production.”
The fDi Report found that renewable energy was the fastest growing sector for greenfield FDI in 2011, accounting for 11% of global FDI. This represents a six-fold increase from 2003, which the report found was a direct result of the rising levels of renewable energy consumption. In 2011, FDI capital expenditure in renewable energy was approximately $77bn, and when the engines, turbines and solar components feeding the sector were included, the figure increased to $91bn. North America and Europe were at the forefront of this growth, with the US accounting for 11% of all projects and the UK accounting for 9%.
However, Mr Pallavicini contends that emerging markets will be the ones to watch in coming years. “The emerging markets are very interesting as most of the growth will come from them,” he says. “Latin America is especially interesting as countries such as Brazil and Mexico will drive this growth in coming years. In addition, other places such as South Africa, India, and even parts of Asia, such as south-east Asia and China, will push the renewable energy sector forward. In Europe, Turkey is growing very strongly – it has a lot of wind [facilities], which is an important resource.”
Nevertheless, with the global economy set to grow by just 3.2% in 2013, according to Deutsche Bank, the demand for renewable energy is projected to decrease. The protracted global economic slowdown has led to a drastic reduction of many government budgets and, as a result, the renewable energy industry’s growth is set to contract as several countries move to make cuts to the subsidies offered in this sector.
“Overall there will be a slowdown in the growth [of renewable energy], but growth will occur nonetheless,” says Mr Pallavicini. “An economic crisis is approaching in Europe and, in my opinion, this crisis will deepen and get worse. Even China is slowing down, and it is not clear what is going to happen in the US. Renewable energy is a safer spot to be when in turbulent waters, and investors are still investing in this area as it has attractive returns.
"Europe will continue to attract investments, however investors will be selective. In our case, in terms of operational assets, we are selectively buying specific portfolios around Europe. We are looking to expand, and Poland is our first choice [for this]. We are also looking at projects in Romania, Bulgaria and Turkey, and at engaging in joint ventures in the US, because solar power is something to watch.”