Record Renewable Energy Spending Will Likely Boost Global Energy Investment by 8% in 2022

Published on: 24 June 2022
by KnowESG

Today's levels of capital spending are far from adequate to address the energy and climate issues, driven by renewables and energy efficiency as well as rising costs.

According to a new International Energy Agency report, global energy investment is expected to expand by 8% in 2022 to USD 2.4 trillion, with the majority of the increase coming from renewable energy. Although positive, growth investment is still insufficient to address the numerous elements of today's energy issue and pave the path for a cleaner, more secure energy future.

According to the IEA's World Energy Investment 2022 report, the power sector—particularly renewables and grids—and energy efficiency are driving the strongest rise in energy investment.

However, the increase in renewable energy spending is not fairly distributed, with the majority of it occurring in advanced economies and China. Furthermore, in some areas, energy security concerns and high costs are pushing for further investment in fossil fuel supply, particularly coal.

IEA Executive Director Fatih Birol said: "We cannot afford to ignore either today’s global energy crisis or the climate crisis, but the good news is that we do not need to choose between them – we can tackle both at the same time.

A massive surge in investment to accelerate clean energy transitions is the only lasting solution. This kind of investment is rising, but we need a much faster increase to ease the pressure on consumers from high fossil fuel prices, make our energy systems more secure, and get the world on track to reach our climate goals.”

In the five years following the Paris Agreement's signing in 2015, clean energy investment increased by barely 2% per year. However, growth has accelerated dramatically to 12 per cent since 2020. Spending has been supported by government financial support and facilitated by the emergence of sustainable finance, particularly in industrialised nations.

Renewables, grids, and storage currently account for more than 80% of overall investment in the power sector. Solar PV, battery, and electric vehicle spending are presently increasing at rates consistent with achieving global net-zero emissions by 2050.

Tight supply networks, on the other hand, are playing a significant role in the headline increase in investment. Almost half of the overall rise in spending is due to rising labour and service prices, as well as materials such as cement, steel, and essential minerals. These difficulties are discouraging some energy corporations from increasing their spending faster.

Spending on developing technologies, particularly batteries, low-emission hydrogen, and carbon capture and storage, is rapidly increasing from a low base. Battery energy storage investment is predicted to more than treble to about $20 billion by 2022.

Despite some bright spots, such as solar in India, renewable energy spending in emerging and developing economies (excluding China) has been flat since the Paris Agreement was signed, with no increase subsequently.

Public funds for long-term recovery are scarce, policy frameworks are frequently inadequate, economic clouds are gathering, and borrowing prices are rising.

All of this diminishes the economic appeal of capital-intensive clean technology. Much more must be done, including by international development organisations, to increase these investment levels and bridge growing regional disparities in the rate of energy transition investment.

Another red flag is a 10% increase in coal supply investment in 2021, spearheaded by Asian emerging nations, with a comparable increase projected in 2022. Despite China's vow to halt building coal-fired power plants abroad, significant new coal capacity is entering the Chinese domestic market.

Russia's invasion of Ukraine has driven up energy prices for many consumers and businesses around the world, harming homes, industries, and entire economies, most notably in the poor world, where people can least afford it.

Some of Russia's immediate export deficiencies must be filled by production elsewhere, particularly for natural gas. New LNG infrastructure may also be required to promote supply diversification away from Russia. While oil and gas investment is up 10% from last year, it is still far below 2019 levels.

Overall, today's oil and gas spending is caught between two future visions: it is too high for a path aligned with limiting global warming to 1.5 degrees Celsius, but not enough to meet rising demand in a scenario in which governments maintain current policy settings and fail to meet their climate pledges.

Today's high fossil fuel costs hurt many economies while providing an unparalleled bonanza for oil and gas producers. Global oil and gas sector income is expected to more than double to $4 trillion in 2022, more than doubling its five-year average, with the majority going to major oil and gas exporting countries.

These windfall earnings represent a once-in-a-generation opportunity for oil and gas producing economies to support much-needed economic change as well as for big oil and gas businesses to diversify their spending.

The share of renewable energy spending by oil and gas corporations is slowly increasing, with the European majors and a few other companies driving most of the development. Overall, clean energy investment contributes to around 5% of global oil and gas sector capital expenditure, up from 1% in 2019.

Clean energy technologies necessitate a plethora of key minerals, and for the first time, the World Energy Investment report provides a full examination of critical mineral investment trends.

Higher and more diverse investment is required to alleviate current price pressures and build more robust renewable energy supply chains. Worldwide exploration spending increased by 30% in 2021, with increases in the United States, Canada, and Latin America promising more diverse supplies in the years ahead.

Source: Iea

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