BNEF vs. IEA Clean Energy Investment Numbers — Who To Believe?

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One of the most important figures used to understand the impact and health of the clean energy sector is the amount of money invested into new clean energy each year, but what do we do when figures don’t seem to match up?

In January, Bloomberg New Energy Finance (BNEF) published figures which showed that global clean energy investment for 2017 reached $333.5 billion, up 3% from 2016 and the second highest annual figure ever. This was thanks in large part due to the mammoth 53 gigawatts (GW) worth of solar that China installed in 2017, as well as jumps in Mexico and Australia.

Global new investment in clean energy by sector, $ billion

However, the International Energy Agency (IEA) recently published its World Energy Investment 2018 report. The report focuses on the entire global energy industry and not just the clean energy sector, but it unsurprisingly includes a clean energy sector. According to the IEA, investment in renewable power for 2017 fell by 7% and didn’t even total $300 billion for the year.

As you can see, there’s an immediate discrepancy between the two figures — one sees investment up, the other sees them down. So where’s the discrepancy? Whose number do we take at face value and which number requires closer consideration? And — even more importantly — is there a reason to favor one over the other?

Trends vs. Activity

Bloomberg defined its figure of $333.5 billion as being based on “its world-leading database of projects and deals” which focuses on “global investment in renewable energy and energy-smart technologies.” Over the last few years, this figure has fluctuated from $360.3 billion in 2015, $324.6 billion in 2016, and $333.5 billion in 2017.

According to Angus McCrone, Editor-in-Chief for Bloomberg New Energy Finance, “The main difference is that BNEF counts all investment in clean energy capacity at the moment the final investment decision is taken (generally about the same time that proper construction begins).”

Comparatively, the IEA referred to “renewable power” reaching “nearly USD 300 billion” in 2017 and referenced spending on solar PV, offshore and onshore wind, and hydropower. In 2015 the IEA referred to “renewables investment, primarily in wind, solar PV, and hydropower” reaching “almost USD 290 billion” and, in 2016, saw “investment in new renewables-based power capacity at USD 297 billion.”

Global investment in the power sector by technology

Angus McCrone describes IEA’s as “more backward-looking” compared to BNEF’s “more forward-looking approach” — which, it’s important to note, is not a criticism of one over the other, but simply an intentional choice made by each. According to McCrone, “the IEA simply takes figures for the amount of capacity that came online in a particular year and then multiplies that by estimated capital costs per megawatt, to come up with investment estimates.”

This might sound overly convoluted, but it actually makes a lot of sense. As an IEA spokesperson explained to me via email, “The IEA renewable investment numbers represent the overnight cost of the renewables capacity that came online in a given year. This is an important measure because it indicates the actual turnover of the energy asset base rather than just the flow of money.”

Or, to put it another way — and echoing Angus McCrone’s description of the differences between the two — the IEA believes that “It is important to examine both short-term financing trends and the energy impact of renewables investment over time.” Further, according to the IEA, “Renewable asset financing data from BNEF and other organisations, which showed an increase in renewable investment in 2017, provide an important real-time indicator of activity and how financial flows can react to market and policy changes. We would expect these trends to be reflected in future IEA investment numbers, but these data do not yet show the real energy impact.”

Internal Confusion?

Another point worth noting is that, despite the fact I took these figures directly from the IEA’s own World Energy Investment reports for 2015, 2016, and 2017, there are discrepancies in the IEA’s own figures. Specifically, in its World Energy Investment 2015 report (PDF), the IEA describes renewables investment of $290 billion, but a year later (PDF) the IEA says that “investment in new renewables-based power capacity … fell back by 3%” despite putting the investment figure for that year at $297 billion — an increase of 2.4%. Further, the IEA put 2017 (PDF) investment at $300 billion but said that it had declined by 7% — rather than the reported increase of 1%.

Obviously, there is something we are missing in the way that the IEA reports its figures — not just when compared to other analysts such as those at Bloomberg New Energy Finance, but also compared to its own previous reports.

According to a spokesperson from the IEA, this seeming internal confusion could be down to a number of factors including the most recent and accurate data and costs and capacities which, naturally, lead to future revisions. The IEA also annually adjusts its data to reflect inflation, which will also have an impact on figures moving forward.

It’s not quite as nefarious as some have liked to imagine, however, especially when you consider exactly what the IEA and BNEF consider renewable/clean energy investment. Bloomberg is more than willing to acknowledge that its figures include not only capacity investment but also research and development “by companies and governments in both renewables and what we call ‘energy smart technologies’, and also equity raising by specialist companies in both those areas.”

Further, Bloomberg considers small-hydro (projects less than 50 MW) to be clean energy, but it doesn’t include large-hydro (50 MW+), whereas the IEA makes no such distinction. In fact, if we are to be entirely fair, the BNEF figure for renewable energy capacity investment all on its own for 2017 is only $265.5 billion — that’s down on the IEA figure.

Back to the Future

It’s also worth noting the difference in how the IEA views the future of renewable energy investment as compared to how BNEF is reporting investment figures for 2018. In a Commentary published this week, IEA Energy Investment Analyst Michael Waldron says that 2017’s investment figures “reveal warning signs for trends in capacity, new generation, and future investment, in part due to a concentration of deployment in markets with policy uncertainty, such as China.” According to Waldron, “In 2017, total renewable power capacity additions essentially levelled off, growing at only 2%.”

These predictions and figures likely come as a surprise to the renewable energy industry, considering what we have already seen play out this year in terms of investment figures, and what we have seen in terms of capacity additions over the past several years.

For example, using data published by the International Renewable Energy Agency (IRENA) in its annual Renewable Capacity Statistics report, there was a total of 161 GW worth of new renewable energy generation capacity added in 2016 and 167 GW in 2017. In and of itself that’s a 3.7% increase year-to-year — although, it’s worth noting that IRENA’s more recent figures revise this, with 2016 capacity additions down to 160 GW and 2017 figures up to 168 GW, meaning that there was actually a 5% increase in capacity additions. Cumulative capacity, on the other hand, increased by 8.3% in 2017 from 2,011 GW in 2016 to 2,179 GW.

Looking to 2018’s investment figures, while figures from BNEF in April showed that clean energy investment in the first quarter was down 10% year-to-year to only $61.1 billion, earlier this month it reported that investment for the second quarter skyrocketed to $76.7 billion, helping to push the investment figures for the first half of 2018 up 1% over the same period a year earlier.

This is not necessarily to nit-pick through the IEA’s figures — most analysts have to revise their figures after a period of time has passed, given the inaccuracy of early, un-checked figures and uncompleted projects which were reported otherwise. But it is nevertheless interesting to see the discrepancies between the IEA and BNEF.

Conclusion

As always, my attempt here has not been to necessarily pick a side or set anything ablaze. Rather, there are pros and cons to both sides of this equation. Focusing only on forward-looking metrics might serve to misrepresent current activity — which, in turn, might impact future growth — while backward-looking metrics might serve to misrepresent current trends — which, in turn, might impact current growth.

In the end, therefore, it is important to take both sides of the equation and make decisions with all the information — not just that which most suitably represents a preconceived bias or perception about “how things should be.”