The cost of installations and financing for renewable energy declined significantly in 2015 reshaping the direction of the energy industry for decades to come, according to the International Energy Agency (IEA), which found that the capacity of new renewable-energy installations rose 40% in five years even as investment fell 2%.
While investment in fossil fuels also fell, reflecting a drop in prices during the shale boom and subsequent glut, the decline in renewable energy investment has been attributed to falling technology costs creating permanent cost savings.
Investment in the energy industry as a whole fell 8% in 2015, primarily due to cuts in oil and gas exploration, even as investment in electricity rose by 4%. Renewables took 70% of new expenditures in electricity generation in 2015.
Project finance loans surpassed company balance sheets as the biggest source of capital for renewables last year, the IEA data show.
“This trend towards project finance partly reflects the constrained cash flows of a relatively new industry, with limited earnings from an already operating asset base,” the organization’s report said. “It is also because projects that are largely based on regulated cash flows are better able to increase leverage and tap into larger pools of bank financing.”
On the equity side, the promise of steady long-term payments from electricity sales over the lifetime of renewable assets, is attracting pension funds to the industry. Project bonds have also gained traction, as did green bond issuance, which reached a record at $48 billion in 2015, the IEA said.