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The Avenue

Galvanize Foreign Direct Investment in U.S. Clean Energy

The United States has made great strides in developing its clean energy sector. Clean energy investment reached $36.7 billion in 2013, increasing by nearly 250 percent since 2004. Despite the gains, the United States will need to continue investing on the order of 1 percent of GDP per year to be able to reduce its greenhouse gas emissions 80 percent below 1990 levels by 2050.

Where will this investment come from? Undoubtedly the bulk of this capital will need to be raised here in the United States. However, there is another not-inconsequential potential source of investment, if we can lure it: foreign direct investment (FDI).

The United States is already the number one destination for FDI, attracting more than $193 billion in 2013. The prospects for additional investment are bright, with global consulting firm A.T. Kearney’s 2014 Foreign Investment Confidence Index reporting increased optimism from senior global corporate executives for U.S. investments.

At the same time, renewable energy has emerged as a substantial FDI opportunity. Worldwide, renewables have been the fastest growing FDI sector accounting for 11 percent of global FDI in 2011. Greenfield investment monitor fDi Markets reported that the volume of FDI projects in renewable energy grew six-fold between 2003 and 2011, with renewable energy being the number two sector for FDI in North America.

However, the industry—and foreign investment in renewables—has faced serious headwinds since 2011. According to fDi Markets, the period between January 2011 and December 2013 witnessed a sharp 55 percent decline in the number of FDI projects in North America’s renewable energy sector. Cheap gas in the United States driven by a shale-drilling boom and an uncertain policy landscape contributed to the decline.

More work is needed to encourage foreign companies to invest in U.S. clean energy. The benefits are huge. Not only will it accelerate clean energy deployment, it will also bring with it higher-paying jobs, new R&D and innovation capacity and increases in trade, as a paper our group released made clear. FDI is already an increasingly important element of U.S. clean energy industrial base with presence throughout the country’s regions and in every cleantech segment: From French nuclear energy giant AREVA in Charlotte, N.C.; Germany’s SolarWorld with its largest solar module production facility in the Western Hemisphere in Hillsboro, Ore.; Danish manufacturer of wind turbines Vestas in Pueblo, Colo.; to South Korean LG Chem’s advanced battery facility in Holland, Mich.

At a time when various countries are racing to attract more clean energy investments, the United States must work harder to enhance its competitiveness and attractiveness as the destination for clean energy investments. The federal government should not only work to sustain a dynamic and growing domestic market but also provide a stable and predictable policy environment that attracts FDI and all other investment naturally. Sub-national leaders, for their part, must nurture their clean energy cluster, create a compelling global identity that captures their unique place in the global clean energy marketplace, and build strong relationships with foreign investors interested in the U.S. clean energy markets.

Faced with a massive investment need, the United States needs to deploy all the tools at its disposal, including FDI, to maximize its share of the growing clean energy market or risk being left behind.

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