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Growth in renewable energy has dramatically cut the share of the oldest form of it – hydroelectricity.
Every month we look at stunning statistics from the world of sustainability. What do they mean? What is the impact for investors? Today: The contribution made by hydroelectric power has been watered down.
Harnessing running water to generate power goes back centuries; the use of water mills to turn axles that could grind corn was prevalent in ancient Greece. Since the invention of electricity, hydroelectric power has figured since the 19th century, adopted by countries with fast-flowing rivers or waterfalls; the first plant opened at Niagara Falls in the US in 1881.
Its use was so widespread that even at the turn of the 21st century, installed hydroelectric power capacity accounted for 92% of all renewable power generation. But with the growth of solar and wind power, hydro now accounts for just 58% of installed capacity, and is set to fall below half in the coming decade, according to figures from the International Renewable Energy Agency (IRENA).
And what makes the figure more extraordinary is that while the proportion is falling in relative terms, the amount of installed capacity in absolute terms is still rising – accounting for 1,250 gigawatts (GW) of generated energy in 2016, up from 789 GW in 2001.
The reason behind the turnaround has been the inexorable growth of other forms of renewable energy, led by solar and wind. Energy generated by wind turbines generated 466 GW, or 22% of all renewable power, in 2016. Solar power contributed 296 GW, or 14%.
The newest kid on the block has been biomass – power sourced from combusting organic material such as forestry waste – which is now generating 110 GW, or 5.2% of installed capacity. Bringing up the rear is geothermal energy, where power is sourced from hot springs or volcanoes, with 13 GW, or 0.6%. On average, about 12.5 GW of power is needed to provide electricity for an industrialized city of one million people for a year.
Investors can target renewables by buying the shares or bonds of the companies involved. One way to do this is through ‘green bonds’ – securities that are issued by companies specifically for environmental projects, including renewable energy.
Robeco’s Euro Sustainable Credits fund has 8% of the portfolio invested in green bonds at mid-June 2017, including those from Spanish oil and gas major Repsol, which uses the proceeds to upgrade its renewable energy functions, such as furnaces and turbines. The French natural gas producer Engie has also issued green bonds to fund wind and solar farms, hydroelectric plants and other projects.
Before investing in them, Robeco checks to make sure they meet standard investment criteria regarding risk and return, says Jan Willem de Moor, portfolio manager of Robeco Euro Sustainable Credits.
The performance potential of many green bonds is attractive
“Green bonds represent a growing part of the investment grade credit universe, though we only invest in them when they have an attractive performance potential given the fundamental quality of the issuer,” he says.
Not only has the supply of green bonds increased over recent years, demand for them is also rising. This makes the performance potential of many green bonds attractive.”