=Paper=
{{Paper
|id=Vol-2030/HAICTA_2017_paper33
|storemode=property
|title=Forecasting of Global New Investment in Renewable Energy
|pdfUrl=https://ceur-ws.org/Vol-2030/HAICTA_2017_paper33.pdf
|volume=Vol-2030
|authors=Oleksandr Chernyak,Yevgen Chernyak,Yana Fareniuk
|dblpUrl=https://dblp.org/rec/conf/haicta/ChernyakCF17
}}
==Forecasting of Global New Investment in Renewable Energy==
https://ceur-ws.org/Vol-2030/HAICTA_2017_paper33.pdf
Forecasting of Global New Investment in Renewable
Energy
Oleksandr Chernyak1, Yevgen Chernyak2, Yana Fareniuk3
1
Department of Economic Cybernetics, Taras Shevchenko National University of Kyiv,
Ukraine, email: chernyak@univ.kiev.ua
2
Department of International Economics and Marketing, Taras Shevchenko National
University of Kyiv, Ukraine, email:eugenius206@mail.ru
3
Department of Economic Cybernetics, Taras Shevchenko National University of Kyiv,
Ukraine, email: yfareniuk@gmail.com
Abstract. The objective of this paper is to research and forecast the global new
investment in renewable energy. The classification of renewable energy was
presented. Modern trends and prospects of wind power, solar energy,
hydropower, bioenergy and geothermal energy are investigated in the article.
Investments in developed countries and developing countries, depending on
the type of renewable energy are analyzed by the authors. The model for
research and forecasting of investment in renewable energy based on annual
data for the period 1990-2015 years was built. In addition, authors used
methods such as moving average, exponential smoothing, Holt-Winters
method and different types of trends based on quarterly data for 2004-2016
years. The forecast of global new investment in renewable energy till 2025 is
presented.
Keywords: Alternative energy, renewable energy, investment, "Green
energy", regression analysis.
1 Introduction
XXI century considered to be the century of the environment. This means that next
decades will be decisive for the natural conditions of future life on our planet. A
"revolution in the energy sector" - is a project of our generation (Facts about
Germany, 2015). The renewable energy is among most important themes on political
arena. Renewable energy (wind energy, bioenergy, solar energy, hydropower and
geothermal energy) based on inexhaustible sources is environmentally friendly and
the least danger to human health; it reduces dependence on imported energy. Also it
is the basis for ecologically sustainable energy in industrial countries and developing
countries (Dena, 2013).
Literature Review. Pollution, global warming, climate change are commonly
recognized as negative externality of power generation under fossil fuels (Hoel and
Kverndokk, 1996), (Rosendahl, 1998). Renewable energy sources have been claimed
to generate externalities that are more positive. The supply of energy from
272
renewables are generally seen as inherently less polluting, with no significant
Greenhouse gas emission during the operation. With the maximization of renewable
energy production, CO2 emissions (Moran and Sherrington, 2007) might be reduced
as well as energy imports. Renewable energy generation is held to contribute mostly
to energy security (Borenstein, 2012), through reduction of external dependence on
foreign fuel import and debt (Vaona, 2016), and through the diversification of energy
sources (Lucas et al., 2016). Renewable energy consumption highly influences
economic growth (Inglesi-Lotz, 2015). It has a large potential to contribute to the
sustainable development of specific territories by providing them a wide variety of
socioeconomic benefits (Del Rio and Burguillo, 2009), (Bindzi Zogo Emmanuel
Cedricka and Pr. Wei Long, 2017).
2 Research of global new investment in renewable energy
Global new investment in renewable energy was USD 285.9 billion in 2015 (fig. 1),
as estimated by Bloomberg New Energy Finance (BNEF, 2016). This represents a
5% growth compared to the previous year and exceeds the previous record of USD
278.5 billion achieved in 2011 (REN21, 2016).
Developed country Developing country World
Investment in renewable
273 286
energy, billion dollars
300 279
239 257
234
182 179
200 154
112 190
73 164 151
100 45 136 142 130
108 121 113 131 156
20 83 29 89 106 98
36 9 53 46 61 66 75
0
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Fig. 1. Investment in clear energy in 2004-2015 (BNEF and REN21, 2016).
Reduction of investment in 2012-2013 after several years of growth was due in
part to uncertainty over incentive policies in Europe and the United States, and to
reductions in support in some countries. Europe’s investment was down 44% from
2012, and, for the first time ever, China alone invested more in renewable energy,
than all of Europe combined. The global decline also resulted from sharp reductions
in technology costs. This was particularly true for solar PV, which saw record new
installations in 2013, despite a 22% decline in dollars invested (REN21, 2014).
Increase in investment in 2014 was caused by the boom in solar power
installations in China and Japan, totaling USD 74.9 billion, and a record USD 18.6
billion of investment for offshore wind projects in Europe. Overall, more than a
quarter of new investment in renewable energy (USD 73.5 billion) went to small-
scale projects in 2014 (REN21, 2015). Asset finance of utility-scale projects, such as
wind farms and solar parks, was the dominant type of investment in 2015 with USD
273
199 billion amount. It is 6% above 2014. Small-scale solar PV installations
accounted for the remainder, at USD 67.4 billion worldwide (REN21, 2016).
This growing consideration for renewable energy technologies is predominantly
assigned to the un-priced side-effects of electricity generation from conventional
fossil fuels through their impacts on climate, human health, crops, structures and
biodiversity, which are typically expressed as externalities (El-Guindy, 2013),
(Bindzi Zogo Emmanuel Cedricka and Pr. Wei Long, 2017).
A comparative study of renewable energy investments of developed versus
developing countries shows that, even though in 2004, developed countries have the
majority of new investments, almost four times more than the developing countries.
The gap slowly closes and now developing countries almost matched the investment
of developed countries (Voica et al., 2015).
For the first time in history, in 2015 total investment in renewables in developing
countries exceeded the same figure in developed economies. The developing world,
including China, India and Brazil, committed a total of USD 156 billion, up 19%
compared to 2014. China played a dominant role in this turnaround, increasing
investment by 17% to USD 102.9 billion. It is 36% of the global total. In 2015,
renewable energy investments also increased significantly in India, South Africa,
Mexico and Chile. Other developing countries, including Morocco, Uruguay, the
Philippines, Pakistan and Honduras, invested more than USD 500 million in 2015.
By contrast, investments in renewables in developed countries declined by 8% in
2015, to USD 130 billion. The most significant decrease in investment was seen in
Europe, down 21% to USD 48.8 billion, despite its record year financing offshore
wind (USD 17 billion, up 11% from 2014). In the United States, investment
increased by 19% to USD 44.1 billion. It was the country’s largest increase since
2011.
The shift in renewable energy investment from developed to developing
economies is not surprising, as the latter ones have rapidly rising electricity demand
and the need in the most additional power generation capacity (REN21, 2016).
Developed countries did a lot of research and development in this field and as the
costs of renewable energy capacities tend to get cheaper and therefore accessible to
lower income countries. Another conclusion might be that the financial crisis had a
bigger impact on developed countries than developing ones as it is seen in the period
2008-2010 (Voica et al., 2015).
Trends in renewable energy investment varied by region in 2015, with increased
investments in China, India, Africa and the Middle East, and the United States, and
decreased investments in Canada and Europe. In 2015, the top 10 national investors
consisted of six developing countries and four developed countries: China (USD
102.9 billion), the United States (USD 44.1 billion), Japan (USD 36.2 billion), the
United Kingdom (USD 22.2 billion), India (USD 10.2 billion), Germany (USD 8.5
billion), Brazil (USD 7.1 billion), South Africa (USD 6.5 billion), Mexico (USD 3.9
billion) and Chile (USD 3.4 billion).
Investment by technology. In 2015, solar power was the leading sector with the
amount of USD 161 billion (up 12%), or more than 56% of total new investment in
renewable energy. Wind power followed with USD 109.6 billion, or 38.3% of the
total (up 4%). The remaining 5.7% was made up of biomass and waste-to-energy
power (USD 6 billion), biofuels (USD 3.1 billion), small-scale hydropower (USD 3.9
274
billion), geothermal power (USD 2 billion) and ocean energy (USD 215 million).
Other technologies faced investment decline comparing to 2014: geothermal was
down by 23%, ocean by 42%, biofuels by 35%, biomass and waste-to-energy by 42%
and small-scale hydropower by 29%.
Until 2014, developed countries (namely Germany, Italy and Japan) were
dominant investors in small-scale solar power. In 2015, China, India, Chile, South
Africa and other developing countries ramped up deployment of both utility-and
small-scale investment in solar PV, and to some extent CSP, closing the gap to less
than USD 1 billion; solar power investment in developed countries was USD 80.8
billion, compared to USD 80.2 billion in developing economies. A similar trend has
been seen with wind power. In 2015, developing countries invested USD 67.4 billion
in wind power, while developed countries invested only USD 42.2 billion.
Large-scale hydropower (projects greater than 50 MW in size) was the third most
important sector for renewable energy investment in 2015 (after solar and wind
power). BNEF estimates that asset financing for large-scale hydropower projects
reaching financial go-ahead in 2015totaled at least USD 43 billion (REN21, 2016).
Different financial actors contribute to varying technology directions: some have
balanced portfolios, while others have strongly directed ones toward particular
technologies, where particular actors may have a disproportionate influence on a
technology's deployment. Actors also differ in their risk direction towards high or
low-risk technologies, with private ones favoring low risk much more than public
ones, and individual high-risk technologies pushed mainly by just two or three
financial actors (Mazzucato and Semieniuk, 2016).
«Green energy» and fossil fuel. In 2015, global investment in new renewable
power capacity, at USD 285.9 billion, was twice higher comparing to the USD130
billion allocated to new coal- and natural gas-fired generation capacity. This
represents the largest difference in favour of renewables to date (REN21, 2016).This
trend is forecast to continue for the rest of this decade (Word Energy Outlook Special
Report, 2015), (Mazzucato and Semieniuk, 2016).
3 Construction of econometric models for forecasting of global
new investment in renewable energy
To investigate the dynamics of investment in "green energy", annual data for the
period from 1990 to 2015 was selected. Here are the main indicators (factors that can
influence the investment): global GDP, population, CO2 emissions, electricity
consumption per capita. Optimal regression is (Table 1):
Investment = 28636.48 – 918.73*ln(CO2) + 228.18*ln(GDP) + 0.72*energy -
- 966.51*ln(Population).
The model is adequate (p-value = < 2.2e-16 <0.05), all regression’s coefficients
are significant (Pr (> | t |) <0.05) with the level of reliability of 95%. The coefficient
of determination R2 = 0,97, which indicates the close links between the factors and
modeled indicator. To test the effectiveness of the model, authors built forecast for
2016 year with an error RMSPE, which is 9.3%.
275
Table 1. Regression lm(Investment~log(CO2)+log(GDP)+log(Population)+energy), that was
built on data from BNEF and World Bank at program RStudio Desktop
Coefficients Estimate Std. Error t value Pr(>|t|)
(Intercept) 28636.4792 5665.3723 5.821 8.89e-06
log(CO2) -918.7265 352.3050 -2.937 0.0079
log(GDP) 228.1770 85.8766 2.975 0.0072
log(Population) -966.5102 183.9643 -5.391 2.39e-05
energy 0.7212 0.1265 5.700 1.17e-05
Multiple R-squared: 0.9747 Adjusted R-squared: 0.9699
F-statistic: 202.6 on 4 and 21 DF p-value: < 2.2e-16
However, the model is characterized by heteroscedasticity and autocorrelation.
After the usage of the method of weighted least squares, the following model was
built: InvestmentW = 27872.94*x0 + 193.69*logGDPW - 1069.36*logCO2W +
0.78*energyW - 777.11*logPopulationW. To test the effectiveness of the model,
authors built forecast for 2016 year with an error RMSPE, which is 12%.
The usage of the method of generalized least squares did not help get rid of
autocorrelation, because there is higher-order autocorrelation (the criterion of
Broysha-Godfrey with reliability level of 95% show, that exists autocorrelation of
fifth order).
To check the seasonality, authors use quarterly data of renewable energy
investments in the period 2004-2016 years and construct regression: Investment =
=b0+b1t+b2S1+b3S2+b4S3, where t - the trend; S1, S2, S3 - dummies for the 1st, 2nd
and 3rd quarters, respectively. The fourth quarter is considered as basic.
Assessing this regression, using the method of least squares and checking the
hypothesis about the significance of factors, following model was built:
Investment=19.30+1.19*t–8.47*S1+4.83*S2–3.81*S3, in which significant
coefficients are only b0, b1, and b2, that is showing the relationship between the
volume of investment in "clean" energy, trend and a dummy variable for the first
quarter. Investments in the first quarter always decrease, as indicated by a negative
factor.
Usage of the moving average, exponential smoothing, and Holt-Winters method
for investigate of investments in "green energy" allows you to get forecasts in which
the error RMSPE ranges from 5% to 15%. Among all available trends the most
accurate forecast can be obtained by constructing logarithmic trend (y=20,7*ln(x)-
13,4), in which error RMSPE is about 17.6%.
Using of neural networks for investigate of investments in "green energy" allows
you to get forecasts in which the error RMSPE is 9.2%. Errors are small and this
information system for forecasting (regression model, neural network and other
methods) can be used to predict the future dynamics of investment in "clean energy"
(fig. 2).
The growing importance of renewable energy in addressing climate change and
improving energy security will boost renewable energy investment growth in the
coming years. The analysts predict the global renewable energy investment market to
exceed USD 320-350 billion by 2020.
276
500 Global new investment in renewable energy
436
Investment in renewable energy,
Forecast of global new investment in renewable energy
411
400 366 388
325 345
274 286 306
270 287
billion dollars
300 272
236 251 244
234
200 178 173
153
110
100 41 70
0
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
Fig. 2. Forecast of global new investment in renewable energy.
4 Conclusion
Calculation of experts of climate change estimates that investments in water,
agriculture, telecoms, power, transport, buildings, and forestry should reach 5 trillion
USD per year to 2020, to achieve a sustainable growth. This effort cannot be made
from public resources; therefore, more attention must be steered in attracting private
finance, by creating suitable policy for it. There are additional incremental
investments needs of 0.7 trillion USD per year, for clean energy infrastructure, low-
carbon transport, energy efficiency and forestry, to limit the global average
temperature increase by 2○C above preindustrial levels (The Green Investment
Report, 2013), (Voica et al., 2015).
Built econometric models can be used to predict the future dynamics of
investment in renewable energy.
Renewable energy sources are set to represent almost three quarters of the $10.2
trillion the world will invest in new power generating technology until 2040, thanks
to rapidly falling costs for solar and wind power, and a growing role for batteries,
including electric vehicle batteries, in balancing supply and demand.
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