US Investments in Alternative Energy: Rising or Falling?

There appears to be widespread agreement that the US is not spending enough money to develop a world-leading alternative energy market. When President Obama introduced his plans for clean energy development as part of his 2011 budget, he noted that the US could fall behind the rest of world in producing the clean energy “jobs of the future” unless the country invested more in alternative energy.

To that end, he proposed spending $28.4 billion on energy programs, the most ever. That is still a fair bit behind China’s $34.6 billion investment in renewable energy in 2009. But government investment is not the whole story.

The United Nations Energy Programme estimates that about $155 billion from all sources was invested globally in renewable energy programs in 2008, the last year for which data is available. UNEP also estimates that investment needs to reach $500 billion by 2020 if the human population hopes to begin reducing greenhouse gas emissions by then.

In 2008, UNEP reported $30.1 billion in total investments in North America. China’s investment totaled $15.6 billion. Most of the investment went into wind ($51.8 billion), solar ($33.5 billion), and biofuels ($16.9 billion).

Venture capital invested $19.3 billion in renewables in 2008, while equity investments totaled $11.4 billion, down more than half from 2007. The global economic free fall in the second half of 2008 effectively killed public financing for renewable energy companies.

But as the economy fights its way back to positive territory, private investment in renewable projects is expected to turn up again.

Much of China’s 2009 $34.6 billion investment in renewables went to wind farms, a much preferrable investment than more coal-fired power plants. In the US, the bulk of renewable energy investment is spent on technological development. Private investment primarily goes to start-up companies developing innovative renewable energy products.

SunPower (SPWRA), Evergreen Solar (ESLR), and First Solar (FSLR) lead in the development of solar technology, but play only a small role in job creation in the US. Evergreen manufactures its products in the US, but employees just over 700 people. Chinese solar maker Yingli Green Energy (YGE) is based in China and employs about 6,000, including at its manufacturing plants.

The view that the US is falling behind in renewable energy is based more on the perception that job creation is a key goal of the renewable sector. In order for alternative energy to compete on its own merits, it needs to manufacture at the lowest possible cost as companies amortize their investment in research and development. Unfortunately, low-cost manufacturing is not a US strong point.

Over the course of 2010, equity investments of all kinds are likely to increase, and investments in renewables will get more than their fair share. The last 12-18 months have slowed things down some, but the basic robustness of the US renewables sector will come forward again. Reports of the demise of the US renewables sector are greatly exaggerated.

Paul Ausick

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