According to Energy Transition Outlook 2022, solar photovoltaic (PV) installations have seen the fastest growth among renewable technologies, with a 20-fold increase in the 2010-21 period, as a result of major cost reductions backed by technological advancements, high learning rates, policy support and innovative financing models.
After passing the milestone of 100GW of installed capacity in 2012, global solar PV installed capacity reached 843GW in 2021. Analysts expect this to be only the tip of the iceberg and solar PV to lead the renewable energy revolution moving forward and become more and more of a key pillar in any decarbonisation effort. Under the 1.5°C scenario, installed capacity is expected to reach 5200GW by 2030 and 14,000GW by 2050, according to Irena estimates.
Foreign direct investment (FDI) has been instrumental to the rapid growth and diffusion of solar energy applications. Energy companies, particularly from Europe have triggered a first wave of cross-border FDI into solar energy in the 2000s. Their peers from North America and Asia followed suit in the following decade, accelerating the globalisation of the solar energy market. FDI into solar energy projects has been on a natural upward trajectory since 2005, peaking in 2019 at $61bn, according to figures from fDi Markets. In total, $389bn of foreign capital has gone into solar generation between 2005 and 2022.
As far as geographic distribution is concerned, FDI in the solar energy sector has moved from being concentrated mostly in western Europe and governed by policy incentives to becoming ubiquitous across the world and driven by falling prices – the global weighted-average levelized cost of electricity (LCOE) of newly commissioned utility-scale solar PV projects fell by 85% between 2010 and 2020, that of concentrated solar power (CSP) by 68%, according to IRENA figures.
Plummeting costs limited the need for public incentives for solar to be competitive vis-a-vis other energy sources – in fact, solar PV is already the cheapest source of energy in countries with high-quality resources even not considering fossil fuels negative externalities, which levelled a playing field originally skewed in favour of European countries with deep public budgets.
If FDI into solar used to be an almost exclusive European play in the 2000s, with European producers chasing incentives across European countries, by the mid 2010s the flows of capital have started to include destinations with high direct normal irradiance (DNI) beyond Europe, particularly in Latin America (Chile) and Africa (Namibia). In the record year of 2019, roughly 45% of overall foreign investment in solar went to Asia Pacific, roughly 19% to Latin America, while western Europe recorded a little under 4% and North America roughly 12%.
China is a story of its own. Beijing’s support of solar energy – enshrined in five-year plans since the early 2000s – set in motion the country’s production machine to meet the resulting booming demand for solar PV panels. Its cumulative installed solar power capacity swelled from 4 GW in 2012 to 253 GW in 2020, the world’s largest according to IEA figures. Chinese solar developers became active foreign investors in the mid-2010s. However, they have gradually retreated in recent years as sensitive sectors like energy became subject to greater FDI scrutiny, and priorities at home changed. Chinese FDI into solar fell from $6.5bn in 2014 to $361m in 2021.
The overall impressive growth in investments has not only contributed to bring forward decarbonization processes, but it also had an important impact on socio-economic dynamics in those destination countries where investments brought about new jobs and labour opportunities. Over the period 2005 to 2020, it is estimated that 83,362 direct jobs have been created globally as a result of solar FDI – roughly 30% of the total estimated jobs created from renewables FDI.
The solar sector remained resilient throughout the pandemic years. Coming off a record 2019, Covid-19 did slow the market momentum by bringing along economic uncertainty, supply chain disruptions and labour shortages. However, it also accelerated the public debate around sustainability and decarbonisation, strengthening even further the long-term fundamentals of solar and renewable energy as a whole.
In 2020 $40 bn foreign investment poured into solar projects globally, whereas $34 bn were allocated in 2021. Investors from western Europe still stood out as the epicentre of solar projects development in the 2020-2021 period. They accounted for more than half (54%) of the solar FDI announced globally. Asian investors came in at a second place (20%), followed by North American investors (15%).
Overall, almost a third of the global FDI into solar tracked in 2020 and 2021 went to the regional European market, while 22% flowed into Asia Pacific, 19% into North America, 17% into Latin America and the Caribbean, 8% into Africa and 5% into the Middle East.
Unlike the evolution of fossil fuels, which have to be mined and drilled in specific places on earth, the geographical development of solar energy has been largely determined by national policies, governmental budgets and the appetite of the private sector. It follows, then, that the countries which have emerged as solar pioneers over the past decade are not necessarily the most propitious places DNI-wise for solar to thrive. Although European countries have been the best at attracting investments, some of them have the least favourable conditions for solar worldwide, while more favourable countries in the Middle East and Africa have not seen the windfall in accordance with their potential. Over the last decade, Ukraine has achieved significant results in the development of renewable energy sector. According to the Ukrainian Association of Renewable Energy (UARE), the capital investment in renewable energy in Ukraine amounts to over 12 billion dollars. According to the forecasts of the Ministry of Energy, the share of RES in the energy balance of Ukraine should have reached 9% by the end of 2022.
Due to Russia’s war against Ukraine, half of the RES facilities are under threat of complete or partial destruction that endangers clean energy transition. Therefore, the damage caused by Russian invasion to the property of Ukrainian and international business must be compensated through international litigation.
Overall, Ukraine has sufficient potential for further solar energy market development to become a platform for new business models and attract foreign investment when the war ends.