The Upside of Down - Green Global Stimulus Spending

Like many markets, the renewable sector has been hit hard by collapsing access to credit and newly skittish investors.

The silver lining however has been an unprecedented outpouring of public money into the marketplace, much of it earmarked towards building a greener global economy.

Several factors are driving this transformation, not the least of which was the realization by governments the world-over that a massive infusion of public money is desperatey needed to avoid even more hair-raising consequences. Creating green collar jobs are now a key part of the recovery.

Continued reliance on fossil fuels also creates very real and increasing security concerns, such as the recent natural gas dispute in Europe or last years roller coaster ride with oil prices.

Lastly, climate change is finally being acknowledged as a global emergency, and world leaders need to find concrete ways to rapidly reduce their collective carbon footprints. The upcoming climate conference in Copenhagen this December is a looming deadline for governments to show they are getting serious about this issue.

The upshot of all this has been that green energy is emerging much faster from the global recession than other sectors and it is being propelled by very large slug of public money.

The recent round up of the renewable investment sector by the United Nations provides a good snapshot of green stimulus packages around the world, and there are some interesting surprises.

The big news of course is that both the US and China have committed a whopping $67 billion towards the renewable energy sector, demonstrating that the two largest economies in the world are serious are retooling their infrastructure to the green end of the spectrum.

South Korea was the greenest stimulus package in the world with fully 20% earmarked for environmental initiatives. Bringing up the rear were European countries and Japan, who dedicated less than 3% of their stimulus spending to reducing carbon emissions.

The UN report also showed that most of these green dollars were flowing towards improving efficiency, with $64 billion dedicated to energy conservation measures and $49 billion invested in upgrading electricity grids. The renewable generating sector received another $34 billion worldwide in new public money.

Another point of interest to investors is how fast this new money will hit the marketplace. New Energy Finance found that that $40 billion of the $183 billion worldwide in green stimuli will get out the door in 2009, with a further $75 billion next year. This lag time is not surprising given the scale of the infusion and the need to hammer out deliverables so this investment works instead of wastes. 

Collectively, European countries are injecting about €400 billion into the marketplace but only small amount of this is new money towards the green energy sector. This is largely due to substantial existing investments and incentives for renewables.

The EU itself has earmarked €5 billon in new green money, most of it towards meeting the requirement to provide 20% renewables by 2020.

China announced a total stimulus investment of $586 billion, of which $30.7 billion is earmarked for improving energy efficiency, and $36.5 billion towards upgrading their grid. The government also announced generous subsidies of $2.93/W for building-integrated solar PV systems that could result in a 50-100 MW market in 2009.

India announced $13.7 billion in stimulus spending but specifically dedicated to green energy or conservation. Much of the spending specifics have yet to be announced so it is difficult to say what impact - if any - this will have on the marketplace.

Japan is injecting $154 billion in the market, including $22 billion for a “low carbon revolution”. Prime Minister Taro Aso has said that solar energy, electric cars and energy efficiency are three factors that “hold the key to future economic growth”.

Specific green spending targets include over $1 billion for installing solar panels on houses, businesses and schools. Another $3.7 billion goes towards subsidizing eco-friendly cars and $2.9 billion towards “eco-friendly consumer electronics”.

South Korea is the world leader in terms of the proportion of stimulus spending going towards environmental initiatives. The government claims that over 80% of the $38 billion package has green features, however the vast majority of this $30 billion feature is towards rail upgrades, reforestation and recycling. However an impressive $7.7 billion will be spent on clean energy, most of this towards improving efficiency.

Brazil is putting the lion’s share of their green spending towards their massive ethanol industry, dedicating $1.1 billion towards credit relief for sugarcane producers. They have also offered substantial tax incentives for solar water installations and green vehicles.

Canadian domestic policy remains in the green energy stone age. Virtually all of “green” spending and incentives are instead targeted at developing carbon capture and storage technology. This is likely an effort to mitigate the enormous carbon footprint of the Alberta oil sands, and avoid the looming impacts of emerging cap and trade legislation in the US market.

The US in contrast has dedicated $66 billion towards 21 specific areas where they want to increase capacity to conserve and produce green energy. The largest of these investments is tax credits for wind production, valued at $13 billion. The US solar sector receives another $5 billion. A further $6 billion in loan guarantees could be leveraged into $60 billion for new green generation and manufacturing facilities.

The biggest beneficiary in the US green energy sector is efficiency and modernizing the grid. $11 billion in loan guarantees and $10 billion in federal and state grants mean there is a mountain of new money heading towards both conservation and building the smartgrid.

We find ourselves in a unique time in history where the converging forces of climate change, security concerns and unprecedented public spending around the world are providing a huge boost to the renewable sector. This new money will start hitting the ground in the next three months and continue for years in the future.

The fundamentals of the renewable sector are already strong. The added, and unexpected, bonus of political will and massive public money mean the future of green energy is looking very promising around the world.