Renewable R&D

Investment in renewables has posted a veritable boom over the last five years, doubling in size with respect to 2005. In fact, investment in renewable energy has been countercyclical, whereas the rest of industrial investment has been adversely affected by the last two years of economic downturn.

Foreign investment flows are also growing in this expanding sector. They were basically nil at the end of the 1990s. Foreign investment, strongly linked to M&A operations until the mid-2000s, is now growing as part of specific strategies by firms to increase their investment in renewable energy, often through direct investment and thus with greater attention to geographic areas of destination. These are among the findings of a study conducted by Bocconi IEFE on foreign direct investment trends in renewable energy plants. The investigation has highlighted the fact that also Italian companies are making these investments, as a vision of which are international areas of attractiveness when it comes to renewable energy is gradually taking shape. But the Italian phenomenon is more recent and of lesser size than is the case with German, Spanish, English, French, and US firms, which are leaders in these kinds of operations. From the analysis, it also emerges that renewable energy is strongly supported by governments, which determine a set of incentives and rules, in order to attract more investment and promote a growing number of technologies, so as to reach stated objectives set by national programs. A role in the growing investment in renewables is also played by international agreement and the mechanism for controlling emissions implemented after Kyoto. A high price of carbon is a permissive condition for investment in renewable energy and in joint projects with developing countries to take place. Europe has recently extended the flexible market mechanisms already in use for emission permits to renewables, introducing common projects among member states and joint project between EU states and third countries with which it's possible to develop power distribution networks. The vivacity and variety of industrial investment from foreign sources is also accompanied by the participation of the financial sector in renewable energy projects. This is an area of great interest for contemporary finance, which goes beyond traditional project financing. The level of investor's confidence depends from a stable and certain regulatory framework, the evolution of national systems in the management of renewables (natural resources, local permits, presence of an industry for components and support services, R&D laboratories), the growth of a new industry which is increasingly specialized and trustworthy. Under such conditions, the financial industry has developed an array of instruments to profit from the growth of renewables in the global market. On a world total of $147 billion worth of investment in renewables (with project finance accounting for 101 billion), venture capital and private equity initiatives (which typically capitalize start-ups), almost non-existent in the first half of the '00s, have now reached 4.8%. The financial industry is paying better attention to the growth prospects of renewable energy, and is now actively participating to R&D financing with $25 billion in 2009 (17% of the total). Finally, we noticed a growing use of equity capital raised through the stock exchange (thanks to the high rating of renewable energy companies with respect to other categories) to finance new company initiatives (14 billion in 2009, i.e. 9.5% of the total).

To conclude, the weight of public financial investors has had a decisive role both in implementing renewable energy projects, due to the large outlays needed, and in supporting new initiatives.