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Clean energy investments record 24% year-on-year decrease

Global new clean energy investment totalled $66.1 billion in Q2 2017 as investors rallied back from the disappointing Q1 2017 spend of $56.3 billion [+17%].

However, investment levels have wavered markedly when compared to the corresponding quarter in 2016, declining a substantial 23% from the $86.6 billion spend.

All-in-all, Clean Energy Pipeline tracked approx. $30 billion fewer investments in the first six months of 2017 compared with H1 2016 ($122.6 billion against $151.1 billion respectively). 

“Despite several landmark clean energy projects reaching financial close in the Middle East, waning investor appetite in Europe contributed to a decline in global clean energy investment,” commented Thai Tran, Head of Data at Clean Energy Pipeline.

“Clean technology and renewable energy firms made $20.5 billion fewer investments in the last quarter than the corresponding period in 2016. This year looks set to record another annual drop in clean energy investment.”

Investors lose project finance appetite in key global markets 

Global clean energy project finance hit $50.9 billion in Q2 2017, a 16% drop compared with the same period of last year. This was the direct result of substantial declines across Europe, Latin & Central America and Asia Pacific. 

However, thanks to the closure of several landmark financings, the most recent quarter represented a 30% increase in investment levels from the lacklustre $39 billion invested in Q1 2017.

In particular, $1.6 billion was invested in a portfolio of 807 MW projects awarded under Germany’s first onshore wind auction while the third 800 MW phase Sheikh Mohammed Bin Rashid Al-Mouktoum III Park in the UAE valued at $990 million confirmed strong investor confidence in the Middle East.

Other notable projects financed in Q2 2017 included China Guodian’s $898 million 300 MW offshore wind farm near Yuetuo Island, the 1.17 GW Sweihan solar project in the United Arab Emirates worth $898 million and the $872 million 300 MW Three Gorges Zhuanghe Phase III offshore wind project in China.

Despite the relative robustness of deal activity in Q2 2017, the quarterly spend could not summit the $58.5 billion of project finance investment recorded in Q2 2016.

The year-on-year decline was due in part to the global wind sector attracting $3.5 billion less financing [-10 %] in Q2 2017 than Q2 2016, as well as a drop in Europe where project finance halved from $17.1 billion in Q2 2016 to $8.6 billion in the most recent quarter.

Within Europe, the UK mustered just $1.1 billion of project finance in Q2 2017, a massive 85% decline from Q2 2016, as the economic ramifications of its decision to leave the European Union begin to be felt.

Project financing also fell sharply in the key emerging markets of Latin & Central America [-55%] and, to a lesser extent, Asia Pacific [-9%], both of which have enjoyed favourable investment levels in recent times.

This trend was reversed in Africa and the Middle East as the regions hosted a 75% rise in project finance investment levels from Q2 2016. North American renewables also grew year-on-year with 32% more project financing secured in Q2 2017 than Q2 2016.

Indeed, clean energy asset finance demonstrated a 12% year-on-year decline with investors dispensing $89.4 billion from January to June 2017, compared to the almost $103 billion invested into clean energy assets in the first half of 2016.

Global green bond issuances record first quarterly dip since Q3 2015

The global green bond market experienced its first dip since Q3 2015 as overall commitments in the financial instrument fell by 1.5% to $28.9 billion in Q2 2017. 

Investments in global green bonds had been on upward trajectory for the past eight quarters, with a record $29.4 billion issuances made in the first quarter of this year. 

However, that is not to say faith in green bonds is waning.  

With $58.4 billion of green bond issuances made already in the first half of 2017, compared with the $42.9 billion of issuances made in the corresponding period in 2016, the global green bond market is well on track to break another yearly record by the end of 2017. 

The relatively small quarterly decrease in the global green bond market was a result of falling activity in corporate green bonds (-22%), government/municipal green bonds (-31%), and green asset-backed securitisations (-23%). 

Though this was somewhat mitigated by over twice as many development bank and private sector bank green bond issuances. 

The top five green bonds in Q2 2017 totalled $8.7 billion, with all but one of the issuances taking place in Europe. 

German development bank KfW Bankengruppe and Bank of Beijing recorded the largest green bond issuances of the quarter, both raising approx. $2.1 billion. Top deals by value also included the Government of France ($1.8 billion), the European Investment Bank ($1.5 billion) and TenneT Holding BV ($1.1 billion). 

Wind assets steal mantle for most attractive M&A 

After a particularly strong first quarter showing, corporate and project M&A in the clean energy sector dropped by over 44%.

Clean Energy Pipeline’s figures recorded $16 billion of clean energy M&A transactions in Q2 2017 – the weakest quarter since Q2 2015. 

In fact, the M&A slowdown was notable across all investor types, including traditionally prolific YieldCos and private equity funds.

YieldCos made 45% fewer investments from the first quarter of the year, investing $347 million overall in Q2 2017. 

Private equity and infrastructure funds also curbed their appetite for M&A investments by 34% to $5.1 billion, compared to $7.8 billion in the first quarter of 2017. 

The biggest overall drop in clean energy M&A was by independent power producers and utilities, resulting in $8 billion fewer transactions, while corporate M&A activity also fell by $3.8 billion. 

Institutional investors were the only group to increase their respective clean energy M&A spends, as a total of $5 billion was made in Q2 2017 compared with the $3 billion invested in the previous quarter. 

Indeed, the global wind and solar M&A sectors experienced wildly contrasting fortunes in the second quarter of this year. 

While wind M&A surged by over 41% to $8.5 billion in the Q2 2017, solar M&A crashed by 71%, resulting in a $5.2 billion fall between Q1 and Q2 2017.

However, the most notable change in overall M&A clean energy investments went to the energy storage sector, as investors finalised $1.5 billion of investments on this category of asset in Q2 2017. By comparison, only $201 million of investments were made in the first quarter of this year. 

Asia Pacific drives public market investment 

Clean energy firms appeared to put the brakes on their public market activities in Q2 2017. At $1.9 billion, public markets recorded a 45% decline in fundraising from the $3.5 billion raised in Q1 2017.

The decrease represented the lowest Q2 activity since 2012 and was accompanied by a notable decline in initial public offerings (IPOs). 

At $1.4 billion, firms in Asia Pacific accounted for 76% of the total funding raised from public markets in Q2 2017, far outranking Europe [$168 million] and North America [$290 million].

This market domination was primarily driven by a number of significant transactions in China after Chinese stock market regulator accelerated approvals for IPOs.

The total revenue generated across Asia Pacific public market deals actually shrank 19% quarter-on-quarter but this was accompanied by even larger slumps in Europe [-50%] and North America [-78%]. 

Q2 2017 hosted six Chinese IPOs across a variety of renewables technologies including biomass, wind, green transportation, energy storage and energy efficiency.  

The loosening of the Chinese regulatory process has contributed to 2017 already hosting 23 IPOs, just two less than the 25 IPOs recorded across the whole of 2016. 

Indeed, Chinese IPOs accounted for two of the three largest deals by deal value as biomass outfit China Everbright Greentech raised $399 million and Chinese clean energy developer Huaneng Renewables raised $281 million through their respective offerings.

Australian recycling firm Bingo Industries completed the largest public market deal in Q2 2017, raising $614 million from its IPO. Fellow Australian firm Carnegie Clean Energy also saw fit to go to market and raised $13.5 million through a capital raise to fund its pipeline Down Under.

VCPE investors shy on development 

Venture capital and private equity (VC/PE) investments for renewables fell to their weakest quarter since Q1 2009, mirroring the overall retraction of clean energy financing worldwide. 

The slowdown resulted in a close to 30% decrease on in clean energy VC/PE investments from the first quarter of the year, taking the total to $1.3 billion for in Q2 2017. 

Indeed, Q2 2017 marked one of the weakest quarters for clean energy VC/PE investment, both in terms of value as well as deal volume. 

The 81 VC/PE deals recorded was also the smallest number of transactions tracked by the Clean Energy Pipeline data team since 2009, and a 36% drop on the 127 transactions undertaken in the first quarter of this year. 

While late stage VC remained relatively robust at $270 million in the quarter, development capital financing and early stage VC fell by 8% and 58%, respectively. 

Much of the losses incurred in Q2 2017’s VC/PE clean energy financing was down to a curtailment of investments in solar and wind sector technology companies. 

CEP’s figures show solar sector VC/PE investments in Q2 2017 falling by 68% to $148 million from the corresponding quarter of the previous year, while wind sector investments experienced a similar drop of 59% to $179 million from Q2 2016. 

In comparison, energy storage VC/PE investments increased by 92% to $475 million in Q2 2017, a sign of the growing investor faith in the technology. 

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