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Renewable energy investments in developing countries: These are the three leaders

In 2017, renewable energy investments in developing countries were $74bn (£56bn) higher than those in advanced economies - but which nations are leading the way?

While funding clean tech in advanced economies has declined over the past decade, the opposite is true of renewable energy investments in developing countries.

There is often talk in international circles about the importance of building s sustainable future by making such investments but in the US and European Union, they have not always practised what they preached.

Instead, nations with higher rates of poverty and emerging markets are leading the charge towards a global economy based on alternative energy.

Developing countries first overtook developed nations in 2015 and the investment gap grew to $74bn (£56bn) last year, according to Statista.

Will this trend continue? The answer is a firm “yes” for at least the foreseeable future, believes Swell Investing, an impact investing platform for backing high-growth companies solving global challenges.

Here, Swell’s economics and finance expert Austin Hooe looks at three countries that are leading the way.

 

Renewable energy investments in developing countries: The trends

Renewable energy investments graph in developing countries

As the graph above demonstrates, renewable energy investments were low for both developing and developed countries in the early 2000s.

In 2004, developed countries spent $38bn (£29bn) on renewable energy investments.

During the same year, renewable energy investments in developing countries totalled $9bn (£6.9bn).

Investments in developing countries continued to grow until 2011.

That year, renewable energy investments reached an all-time high of about $200bn (£152bn) in developed countries. Developing countries invested just under $100bn (£76bn) during that period.

Interestingly, the trends change after 2011. This shift is likely due to falling solar energy prices and Chinese state-led development.

While developing countries continued to ramp up their investments year after year, developed countries reduced their investments.

In 2017, developed countries invested just $103bn (£78bn) in the renewable energy sector.

This figure is about half of the contributions of developed countries in 2011. We should take note that renewable energy investments by developing countries swelled to $177bn (£135bn) in 2017.

This figure has not yet matched the contributions of developed economies in 2011, but it is close.

Developing countries represent about 63% of all renewable energy investments.

 

Renewable energy investments in developing countries: The leading nations

China

Given that it has the second largest economy in the world, it might be a surprise to see China on this list but the World Bank regards it as a developing country because its per capita income is still a fraction of that in advanced countries, while its market reforms are incomplete.

It adds: “According to China’s current poverty standard (per capita rural net income of 2,300 Chinese yuan per year in 2010 constant prices), there were 55 million poor in rural areas in 2015.”

Out of the $177bn (£135bn) invested by developing countries in 2017, China contributed $126.6bn (£96.5bn).

China is driving more than 70% of renewable energy investments among developing countries, according to the Frankfurt School.

China

Most of Chinese investments are focused on solar and wind energy industries.

China invested $86.5bn (£66bn) and $36.1bn (£27.5bn) in in solar and wind, respectively.

When you consider the entire mix of players among both developed and developing countries in the renewable energy sector, China is still a dominant investor.

The country accounts for 45% of all global renewable energy investments.

This figure is impressive, but it is unclear if it can maintain its contributions over the long-run due to a growing deficit.

While most global renewable energy investments are driven by the private sector, a significant portion of alternative energy investments are credited to state-led financing and subsidies.

Economists are particularly concerned that China’s state-led investments concerning renewable energies and infrastructure may be met with the problems that undermined Latin American development between the 1960s and 1980s.

State-led investments and enterprises are notorious for corruption and misallocation problems.

While China may help trigger a global shift to renewable energy, the investments are not driven by altruism.

Chinese investments are an effort to curb pollution, usher in an era of energy independence, and develop the economy..

Brazil

eike batista
Rio de Janeiro, Brazil

Brazil is a much smaller player than China, but the country still contributes a sizeable portion to the global mix of renewable energy investments.

In 2017, Brazil invested $6bn (£4.6bn) in the renewable energy sector. Brazilian investments increased by 8% since 2016, according to the Frankfurt School.

Despite recent growth in the renewable energy sector, Brazil is still lagging behind 2008’s massive investment of $11.5bn (£8.8bn) in biofuels.

In 2017, Brazil contributed $3.6bn (£2.7bn) to the wind energy industry. It invested $2.1bn (£1.6bn) in solar projects.

Brazil is currently facing a variety of economic and political problems, so renewable investment growth may be sluggish in the near future.

India

In 2017, India was the second-largest developing country investing in renewable energy technologies.

However, unlike China, India’s investments have declined by 20% since 2016.

In 2017, India invested $10.6bn (£8.1bn) across the renewable energy sector.

India
Taj Mahal, India

India focused its investment efforts on solar and wind energy during in 2017.

The Frankfurt School invested $6.7bn (£5.1bn) in solar projects. About $4bn (£3bn) was invested in wind energy companies.

India aims to reach 100 gigawatts (GW) of solar energy by 2022, but recent estimates suggest that India is not on track to reach this goal.

Perhaps the government of India will ramp up state-led investments, subsidies, and tax credits to spur progress in the coming years.