Renewable energy projects depend on a consistent and reliable stream of financing. This can come from both the public and private sectors and includes a variety of sources, such as:

Public

• Tax credits
• Subsidies
• Bonds

Private

• Angel investors
• Venture capitalists
• Banks
• Initial public offerings

Global investments in renewable energy technologies - including venture capital, project finance, public markets, and research and development - expanded by 4.7 percent from $148.4 billion in 2007 to $155.4 billion in 2008, according to research firm New Energy Finance. While the clean energy sector's medium-term and long-term growth prospects are considered excellent, tight credit markets and skittish stock markets have impacted growth prospects in the short term. New investments in the clean energy sector fell by 53 percent to $13.3 billion in the first quarter of 2009 compared with the same period last year.

While tight credit markets are currently impacting the renewable energy sector, signals from the public and private sectors provide positive indicators that clean energy will fare better than most other sectors in the long run. For example, clean tech venture capital funding in the first quarter of 2009 was $1 billion. Pessimists point out that this represents a precipitous 48% drop from the previous quarter, while optimists remind us that $1 billion exceeds funds raised in the first quarter of 2007, back when the economy was still booming. Notably, almost 70% of that $1 billion was spent in North America, a figure that exceeds the entire U.S. R&D spending in this area last year.

While venture capital has contracted temporarily, public sector investments are picking up some of the slack. An estimated $400 million will be invested in the sector through governments' various economic stimulus packages, and public utilities are also looking to invest significantly in clean energy projects, brightening the outlook for the renewables sector.

Other positive indicators and trends include:

• The World Bank estimated the size of the carbon market at $11 billion in 2005, $30 billion in 2006 and $64 billion in 2007.
• The WilderHill clean energy index comprised of 48 large U.S. renewable energy stocks rose over 58 percent in 2008 (soaring up from an 8 percent gain in 2006 and 5 percent in 2005).
• The fist U.S. regional greenhouse gas initiative to host a CO2 allowance auction, RGGI, has sold over $262 million in CO2 allowances through three auctions.
• Global carbon trade rose 80% in 2007.

ROLE OF POLICY

Strong leadership on climate change by governments and organizations around the globe will fuel financing in the renewable energy sector. There are a host of policies being implemented at all levels of government to incentivize clean energy investment. Some examples include:

• Feed-in tariffs. Businesses and homeowners are paid a premium for producing green energy and feeding it back to the grid. This idea is big in Europe and has started to pop up in the U.S. and Canada The idea is to create a financial incentive to overcome high initial installation costs and shorten the ROI timeline.
• Renewable Portfolio Standards (RPS). Many states and municipalities require that a certain percentage of their power come from renewable energy sources by a certain date. In the U.S., President Obama is pushing for a national RPS of 10% by 2012 and 25% by 2025.
• Cap-and-Trade. In the U.S., President Obama has committed to implementing a market-based cap-and trade program to reduce greenhouse gas emissions 80 percent by 2050. In the meantime, four regional programs are under way, with 33 states participating.

Action from local, state and federal governments, along with coordinated international efforts to spur investment in renewable energy demonstrate that this sector has a bright future for continued growth. Many experts and investors view the clean energy sector as a key enabler to an economic turnaround and a vital component to long-term economic and climate stability.

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ADDITIONAL RESOURCES

For a comprehensive overview of state and federal clean energy policies, visit pewclimate.org.

Stock Indexes:

• NASDAQ® Clean Edge® Green Energy Index
• WilderHill Clean Energy Index