{"id":9568,"date":"2015-03-06T09:03:59","date_gmt":"2015-03-06T15:03:59","guid":{"rendered":"http:\/\/blogs.edf.org\/energyexchange\/?p=9568"},"modified":"2015-03-05T16:51:10","modified_gmt":"2015-03-05T22:51:10","slug":"clean-energy-industry-is-not-yet-mature-and-thats-a-good-thing","status":"publish","type":"post","link":"https:\/\/blogs.edf.org\/energyexchange\/2015\/03\/06\/clean-energy-industry-is-not-yet-mature-and-thats-a-good-thing\/","title":{"rendered":"Clean Energy Industry is Not Yet Mature \u2013 and that\u2019s a Good Thing"},"content":{"rendered":"

\"graph-163509_640\"<\/a>Last year, global investment in clean, renewable sources of energy grew by a better-than-expected 16 percent to $310 billion, according to Bloomberg New Energy Finance<\/a> (BNEF). Industry watchers applauded the strong showing, but the numbers imply more than just robust growth. A careful analysis leads us to two additional illuminating conclusions about the industry\u2019s current level of development and its future.<\/p>\n

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  1. The clean energy industry is in a development phase<\/strong><\/li>\n<\/ol>\n

    In 2013, China\u2019s gross domestic product<\/a> (GDP) grew 8.5 percent, with investment comprising<\/a> 47 percent of GDP. By contrast, GDP in the United States<\/a> expanded 1.9 percent, with investment comprising<\/a> 16.8 percent. As a developing country, China\u2019s growth rate is significantly higher, and a telling characteristic for developing countries is that investment makes up a relatively large percentage of GDP.<\/p>\n

    This pattern doesn\u2019t just hold true for countries; we also see a similar dynamic when looking at industries. According to BNEF, the oil & gas (O&G) industry spent $913 billion on capital expenditures, or capex<\/a>, last year, while the market capitalization<\/a>, or market cap, for the top ten companies in the NYSE Arca Oil & Gas Index<\/a> stood at $1.63 trillion. By contrast, the market cap for the top ten companies in the Wilder Hill New Energy Global Index<\/a> was much smaller at $164 billion.\u00a0The Wilder Hill New Energy Global Index comprises 107 companies from around the world that cover a broad spectrum of clean energy technologies.<\/p>\n

    While O&G capex dwarfed last year\u2019s clean energy investment of $310 billion by about three times, the market cap for the top ten largest O&G companies was about ten times larger than for the top ten clean energy companies. Seen in a different light, clean energy investment was about twice<\/em> as large as the market cap of the ten largest clean energy companies. By contrast, O&G capex was half<\/em> as large as the market cap of the ten largest O&G companies.<\/p>\n

    The clean energy industry\u2019s high investment relative to market capitalization \u2013 as compared to the oil and gas industry \u2013 indicates the clean energy industry is in a development phase and, thus, more likely than a developed industry to undergo dynamic growth given favorable conditions.<\/p>\n

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    1. Clean energy investors are optimistic about future technological improvement<\/strong><\/li>\n<\/ol>\n

      A measure for investors\u2019 optimism for future technological improvement is an industry\u2019s level of venture capital (VC) investment. Total investment by VC firms<\/a> in the U.S. hit $65 billion in 2012-2013, according to Ernst & Young.<\/p>\n

      During this same span, investment by VC and private equity in clean energy<\/a> came to $6.7 billion, according to BNEF, more than fifteen times the level of VC investment in the oil and gas<\/a> industry, which was only $383 million in the same time frame. VC investment in solar and wind energy alone stood at $1.9 billion, five times O&G VC investment.<\/p>\n

      VC investment points to a rosy future for technology development in the clean energy industry as compared with the O&G industry. From 2012-13:<\/p>\n