More bang for the buck

Sri Lanka’s Government in deciding to cancel the Sampur coal power plant is taking a decisive step to meet the rest of the world that is spending heavily on renewable energy and finding its higher returns is reshaping the direction of the energy industry for decades to come.

Renewables provided more bang for the buck last year because the cost of installations and financing declined, says the latest report released by the International Energy Agency.

A Bloomberg analysis on the report found the capacity of new renewable energy installations coming online surged 40% in five years even though investment in those technologies slid 2% to $ 288 billion.

The findings indicate the world is shifting slowly toward less-polluting forms of energy, helping policymakers develop in the poorest areas while limiting greenhouse gas emissions blamed for global warming. While investment in fossil fuels fell, reflecting a drop in oil, natural gas and coal prices, it’s improving technology that was responsible for the decline in renewables.

Global experts agree the critical importance of energy investment to global prosperity will grow as countries look for ways to meet their climate goals and hundreds of millions of people gain access to modern energy services. The ability to mobilise investment is ultimately the key determinant of the success or failure of an energy policy.

Money flowing into the energy industry as a whole fell by 8% last year, dragged down by collapsing investment in oil and gas exploration. Investment in electricity rose by 4% to $ 682 billion.

Renewables took 70% of expenditures in generation in 2015, attracting more than two-and-a-half times more than fossil fuels such as oil and coal. New nuclear reached the highest level in over two decades, adding 10 gigawatts at a cost of $ 21 billion.

Lower-cost renewables is making more projects worth developing, though there are big variations worldwide. Solar and wind costs in China were about 15% cheaper than the global average because so much of the industry’s manufacturing capacity is based there. In the US, utility-scale solar costs were almost 35% higher than the average because of the expense associated with permitting and engineering.

Finance is driving the shift with more diverse sources of funding. Project finance loans surpassed company balance sheets as the biggest source of capital for renewables last year, the IEA data shows. On the equity side, more investors are being drawn in by the promise of steady long-term payments from electricity sales over the lifetime of renewable assets, matching the liabilities that pension funds have. Project bonds have also gained traction, as did green bond issuance, which reached a record at $ 48 billion in 2015, the IEA said.

China sold its first green bonds last year, and institutions have raised $ 8 billion there so far this year. Solar developers in the US and Africa have securitised rooftop panel systems, issuing asset-backed bonds with coupon payments linked to cash flows from monthly payments.

Companies outside the energy business also are pouring money into renewables. The IEA counted at least 23 of them including Apple Inc. and Facebook Inc. that have signed contracts to buy clean power in North America in 2015.

Sri Lanka needs to tap into these trends and ensure that both the economy and the environment win.