Steady growth in renewables markets and improvement in energy efficiency are together set to push global energy investment 8% higher in 2022 to reach $24trn, the International Energy Agency (IEA) has said in a new report, but added growth is still far from sufficient to tackle the parallel energy and climate crises.
Renewables, grids and storage now account for more than 80% of total power sector investment, the IEA said in its World Energy Investment 2022 report. But the rise in clean energy spending is not evenly spread, with most investment taking place in developed economies and China.
And in some markets, energy security concerns and high prices are prompting higher investment in fossil fuel supplies, particularly coal.
“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,” said IEA executive director Fatih Birol.
“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.”
Pace of clean energy growth accelerating
While clean energy investment in the five years after the Paris Agreement was signed in 2015 grew by only 2% a year, since 2020 growth has sped up to 12%, the report found, helped by fiscal support from governments and the rise of sustainable finance.
At least in solar PV, batteries and electric vehicles, spending is now increasing at rates consistent with reaching net zero emissions by mid-century, the IEA said.
Part of the rise in spending derives from tight supply chains, though, with nearly half of the overall increase reflecting higher costs – from labour and services to materials such as cement, steel and critical minerals – deterring some energy companies from picking up their spending faster.
Coal, LNG and carbon capture
From a low base, there is rapid growth underway in investments on some emerging technologies, in particular batteries, low emissions hydrogen, and carbon capture utilisation and storage (CCUS). Investment in battery energy storage is expected to more than double to reach almost $20bn this year.
The IEA also points to a worrying 10% rise in spending in coal supply last year, led by emerging economies in Asia, with a similar increase expected in 2022.
Russia’s invasion of Ukraine has pushed energy prices higher around the world, hurting households, industries and entire economies, most severely in the developing world where people can least afford it, the agency pointed out.
Some of the immediate shortfalls in exports from Russia need to be met by production elsewhere, notably for natural gas, and new liquefied natural gas (LNG) infrastructure may also be needed to facilitate the diversification of supply away from Russia. While oil and gas investment is up 10% from last year, it remains well below 2019 levels, the report said.
Although high fossil fuel prices are generating pain for many economies, they are also resulting in an unprecedented windfall for oil and gas producers, where sector income is set to jump to $4 trillion in 2022, more than twice its five-year average, with the bulk of it going to major oil and gas exporting states.
Those windfalls provide a once-in-a-generation chance for those countries to fund the transformation of their economies, the IEA said, but noted that clean energy investment still accounts for only some 5% of oil and gas company capital expenditure worldwide (albeit up from 1% in 2019).
