Upholding the facts: renewable energy, delivering safe and sound returns to investors
October 24th, 2013
MEXICO CITY. Consistently decline in costs added to increasingly high levels of investments have allowed renewable energy technologies to experienced multi-decadal market growth. In 2012, the global renewable energy market (comprising the net consumption of electricity generated via geothermal, solar, wind and hydroelectric means, as well as through wood and waste combustion) had total revenues of $475 bn. Despite being 5% less than 2011 (when they exceeded $500 bn), global renewable energy market revenues have realized a compound annual growth rate of 9.9% since 2008.
Compared to coal, oil and gas, and only from a revenue perspective, the renewable energy market might look less attractive. Certainly, global revenues from fossil fuel industry reflect its more than a century market presence. To illustrate, global revenues from the 75 largest oil and gas companies (based on 2011 end-of-year oil and gas reserve estimates) accumulated almost $5 trillion over the 2007-2011 period. This reference is often misleadingly perceived to undermine the merits of a young but dynamic renewable energy market. However, it does not provide the full story. In reality, although revenues were close to $5 trillion, costs associated to full operations (namely production costs, exploration expenses, taxes and other expenses) amounted $3.7 trillion that is 76% of total revenue.
Although historically more profitable than the renewable energy market, the fossil fuel market is prone to experience future market risks that renewables will not. For instance, HSBC (2012, 2013) believes that carbon constraints post-2020 could impact discounted cash flows valuations of coal assets by as much as 44%, and that the potential value at risk of the oil and gas sector could rise to 40-60% of market capitalisation due to lower demand and subsequent lower oil and gas prices.
On the other hand, there is no doubt that the renewable energy market offers a more promising prospect for the future. The International Energy Agency (2013) estimates that, under current trends, global renewable energy electricity production will exceed 6500 TWh by 2017, that is, over 25% higher than what it is currently being produced. In fact, conservative forecasts estimate that annual investments in renewable energy power assets will be close to $300 bn by 2017. Other sources even expect that such level of annual investments would translate into a potential market value of $633 bn by the same year (26.5% higher than in 2011). At current growth rates, investments in renewable energy would account for over 70% of total investments in power generation by 2030. It is worth highlighting that, increasing pressure to escalate climate change mitigation by substituting carbon intensive energy production with renewables, will require much higher levels of investments. Evidently, under this context, market shares of renewables will likely be much higher than conservative forecasts and therefore, investment opportunities more promising.
Stating that the renewable energy market is unattractive is not only a misconception but a lack of vision. Renewable energy constitutes an emerging market with huge business opportunities in the midterm; it already pays off interestingly worldwide. Penetration of renewables in the power market has been a success story. Twenty five yrs ago global power generation from renewables (excluding hydro) was 0.6%; today, 5.2%. A recent report from Citi (2013) suggests that 900 GW of solar installations and another 1,500 GW of wind farms could be installed around the world at little cost to electricity grids. This potential would not only represent a $ 5.7 trillion investment opportunity as estimated by Citi’s analysts, but also it would represent a long term rapidly growing market opportunity which rests on fundamental facts; one that, for sure, should prompt investors to have a second thought if they want to deliver safe and sound returns to their shareholders.
Tabaré A. Currás
Advisor on Energy Economics
WWF-Global Climate and Energy Initiative
Mexico City – MEX
 MarketLine, “Renewable Energy: Global Industry Guide,” 2013.
 MarketLine, “Renewable Energy: Global Industry Guide,” 2012.
 E&Y, “Global oil and Gas Reserves Study,” Ernst & Young’s Global Oil and Gas Center, DW0196, 2012.
 N. Robins, “Coal and Carbon Stranded Assets: Assessing the Risk,” HSBC Bank plc, London, Jun. 2012.
 P. Spedding, “Oil & carbon Revisited: Value at Risk from ‘Unburnable’ Reserves,” HSBC Bank plc, London, Jan. 2013.
 OECD/ IEA, “Renewable Energy Medium-Term market Report 2013: Market trends and Projections to 2018,” Paris, 2013.
 Guy Turner, “Global Renewable Energy Market Outlook: Fact Pack,” presented at the BNEF Summit 2013, New York, 26-Apr-2013.
 US Energy Information Administration, “International Energy Statistics,” 2013. [Online]. Available: http://www.eia.gov/. [Accessed: 17-Oct-2013].
 REN21, “Renewables 2013- Global Status Report,” Paris, 2013.
 Citi Research, “Citi Climate Change Universe: the $5.7 trn Renewables Opportunity That Still Remains,” Citi, Sep. 2013.