The substantial investment in clean energy has led to rapid advances in performance efficiency and significant cost reductions. Technologies such as wind, solar, LED lighting and large-scale energy storage, to name a few, are now at a point of unsubsidised competitiveness with existing technologies in a growing number of markets. The growth in new investment and the rapid improvements in economics have occurred well ahead of expectations.
Share market under performance
Despite close to $US1 trillion of new investment, rapid adoption of new technologies and extraordinary cost declines, the NEX Index has lost over 75 per cent of its value since 2008 and close to 50 per cent since 2010. There are two key reasons for this.
Firstly, disappointing negotiations at the Copenhagen Climate Change Conference and some highly publicised technology failures have weighed heavily on sentiment in the sector, removing much of the hype from the clean energy valuations, but generally not changing industry fundamentals.
The second and far more critical reason relates to individual industry dynamics. In establishing subsidies to stimulate the adoption of clean energy technologies, policy-makers around the world generally underestimated how quickly prices would fall and how rapidly they would be deployed.
Excessive subsidies, declining costs and a low cost of capital led to a substantial new project boom, distorting markets for equipment and components and driving margins to unsustainably high levels across the entire supply chain. This in turn attracted intense competition, particularly from new Chinese low-cost entrants fuelled by low-cost stimulus-related finance.