The Covid-19 pandemic caused overall greenfield foreign direct investment (FDI) project numbers to decline by 17.5% in 2020. FDI levels rebounded in 2021 by 18.1%, according to the Global FDI Annual Report 2022, with renewable and alternative power one of the best-performing sectors.
At a time when global FDI was sharply in decline, renewable and alternative power recorded the fastest growth of any sector in 2020, and project numbers grew even higher in 2021. Geopolitical pressures will further test the resiliency of this sector in 2022, however, as Russia’s invasion of Ukraine slows economic growth, adding to inflationary pressures and supply chain disruptions.
Renewable power FDI continued to grow in 2021
The number of new greenfield FDI projects in renewable and alternative power rose 25.6% in 2021 to 768 projects, according to the FDI Projects Database. Amid turbulent times internationally, project numbers in this sector grew 71% between 2019 and 2021.
While coal, oil and gas FDI projects between 2019 and 2021 totalled just 316, the total number of renewable and alternative power FDI projects reached 1,781, showing how much cross-border energy investment has shifted away from fossil fuels in recent years.
New investments made up 92% of all greenfield FDI projects in renewable and alternative power, with just 64 expansion projects recorded in 2021. The number of expansion projects in the sector was in fact down 23.8% compared with 2020.
Where are the leading destinations for renewable and alternative power sources FDI?
Western Europe has been the most active region for renewable and alternative power FDI in recent years, accounting for more than one-third of global projects between 2019 and 2021. Western Europe recorded 277 FDI projects in 2021, with Asia-Pacific the second most active region with 113 projects, and central and eastern Europe and the Commonwealth of Independent States (CEE and CIS) third with 112 projects.
The CEE and CIS saw the strongest growth of any region between 2019 and 2021, with a 150% increase in renewable and alternative power FDI projects over the three-year period. Central America and the Caribbean was the only region to see a decline over this period, having recorded 33 projects in 2019 but just 13 in both 2020 and 2021.
North America was the third most active region between 2019 and 2021 with a total of 227 renewable power FDI projects, yet its growth in project numbers over the period (33.3%) was more modest than that of all other regions except sub-Saharan Africa and Central America and the Caribbean. It ranked only fifth out of all regions for project numbers in 2021.
Despite the wider North American region falling down the rankings, the US remained the top destination country for FDI projects in renewable and alternative power. The US recorded 81 projects in 2021, marking an 18% rise on project numbers in 2020.
The largest FDI project by value in renewable and alternative power in 2021 was US company Westinghouse’s agreement to build four nuclear power plants in Ukraine at a cost of $30bn (Hrv1.11trn). The subsequent invasion of Ukraine by Russia has not killed the deal; instead, Westinghouse announced in July 2022 that it was expanding its plans to nine nuclear reactors and that it would supply all fuel for the country’s nuclear fleet.
What are the top renewable and alternative power FDI operations?
Energy generation was the leading function for FDI in the renewable and alternative power sector, with 1,501 projects between 2019 and 2021, almost ten times that of second-ranked sales, administration and marketing (156 projects). There were 667 energy generation FDI projects in 2021, an increase of 43.8% on 2020.
The number of logistics and warehousing FDI projects almost doubled in 2021, rising from nine to 16 compared with the previous year.
There were ten headquarters FDI projects globally in 2021, five new and five expansions of existing projects. Most of those projects were located in western Europe (four) or the US (three), although Denmark-based sustainable energy specialist Makeen Energy opened an office in Riyadh, Saudi Arabia, Indian conglomerate Adani Group opened a regional headquarters in Singapore, and German solar power solutions company Intec Energy expanded its footprint in Kraków, Poland.
What are the top subsectors for renewable and alternative energy FDI?
Photovoltaic (PV) solar power was the largest subsector for renewable and alternative FDI projects in 2021, with a total of 347 projects. Both solar PV and onshore wind recorded 164 projects in 2019, yet while the former subsector grew strongly during the pandemic years (up 111.6% from 2019 to 2021), project numbers remained stagnant for the latter. Over the three-year period, the total number of solar PV projects (801) was almost double that of onshore wind (446).
Offshore wind projects take much longer to develop and are much more expensive to build, and so are far less numerous than solar PV and onshore wind farms. Yet the power they produce is far greater, and the continued growth in project numbers in this subsector has an outsized positive impact on the global transition away from fossil fuel-based electricity generation.
There were 78 offshore wind FDI projects in 2021 compared with just 38 in 2020 and 39 in 2019. Among these projects were Enterprize Energy of Singapore investing $10bn (S$14.05bn) to build a 4GW wind farm off the coast of Ireland that will be used to generate hydrogen, US-based Hectate Energy building four offshore wind farms in the UK, and Denmark’s Ramboll Group announcing plans for new offshore wind farms in China, Japan, South Korea and Taiwan.
Where are the leading renewable and alternative power investors located?
The UK was the leading source market for renewable and alternative power FDI projects in 2021, accounting for a total of 74 projects. The UK was just ahead of France (65) and Germany (62) in 2021, although over the three-year period from 2019 to 2021, Germany was the largest source market with 183 projects.
Italy-based Enel was the most active renewable and alternative energy FDI investor by number of projects in 2021. It recorded 49 projects, with a particularly heavy focus on Spain as a destination market (16 projects).
Major oil companies continued to diversify their portfolio of assets by investing in renewable and alternative power sources in 2021. UK-based BP was the most active of the oil majors, recording 16 FDI projects in the sector in 2021. All but two of these projects were through its solar power subsidiary Lightsource, which announced projects in western Europe, South America, the CEE and CIS, Asia-Pacific and North America.
Amazon, the US-based internet giant that was the world’s most active FDI investor in 2021, recorded 14 solar and wind power FDI projects in various global regions during the year. Its wind and solar FDI projects totalled just three in 2019 but increased to 12 in 2020 before increasing again in 2021.
What does the future hold for FDI in renewable and alternative power?
Russia's invasion of Ukraine has weakened global energy security and put further pressure on Western countries to reduce their use of Russian gas imports. This should act as a catalyst to a sector that has already been producing strong growth during testing times for the global economy.
The global cost of living crisis, the continued impacts of Covid-19 and growing geopolitical instability are all expected to dampen FDI flows in 2022. Yet renewable and alternative power may prove to be one of the sectors that bucks that trend, with the urgency for international climate action only increasing.