In its latest world energy investment analysis, the IEA reports that global clean energy spending is set to increase by 8% in 2022 to reach $2.4tn, with the anticipated rise coming mainly in renewables and energy efficiency. However, ‘although encouraging, the growth in investment is still far from enough to tackle the multiple dimensions of today’s energy crisis and pave the way towards a cleaner and more secure energy future,’ warns the IEA.

The fastest growth in energy investment is coming from the power sector – mainly in renewables and grids – and from energy efficiency. The rise in clean energy spending is not evenly spread, however, with most of it taking place in advanced economies and China. And in some markets, energy security concerns and high prices are prompting higher investment in fossil fuel supplies, most notably on 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,’ says 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.’

Clean energy investment grew by only 2%/y in the five years after the Paris Agreement was signed in 2015. But since 2020, the pace of growth has accelerated significantly to 12%, according to the study. Spending has been underpinned by fiscal support from governments and aided by the rise of sustainable finance, especially in advanced economies. Renewables, grids and storage now account for more than 80% of total power sector investment. Spending on solar PV, batteries and electric vehicles is now growing at rates consistent with reaching global net zero emissions by 2050.

Tight supply chains are also playing a large part in the headline rise in investment, though. Almost half of the overall increase in spending is a reflection of higher costs, from labour and services to materials such as cement, steel and critical minerals. These challenges are deterring some energy companies from picking up their spending more quickly, notes the IEA.

From a low base, there is rapid growth underway in spending on some emerging technologies, notably 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 in 2022.

However, despite some bright spots, such as solar in India, clean energy spending in emerging and developing economies (excluding China) remains stuck at 2015 levels, with no increase since the Paris Agreement was reached, states the IEA. Public funds to support sustainable recovery are scarce, policy frameworks are often weak, economic clouds are gathering and borrowing costs are rising. All of this undercuts the economic attractiveness of capital-intensive clean technologies. Much more needs to be done, including by international development institutions, to boost these investment levels and bridge widening regional divergences in the pace of energy transition investment, it says.

Another warning sign comes in the form of a 10% rise in investment in coal supply in 2021, led by emerging economies in Asia, with a similar increase likely in 2022. Although China has pledged to stop building coal-fired power plants abroad, a significant amount of new coal capacity is coming onto the Chinese domestic market.

Russia’s invasion of Ukraine has pushed up energy prices for many consumers and businesses around the world, hurting households, industries and entire economies – most severely in the developing world where people can least afford it. Some of the immediate shortfalls in exports from Russia need to be met by production elsewhere, notably for natural gas, and new LNG infrastructure may also be required to facilitate the diversification of supply away from Russia, notes the IEA. While oil and gas investment is up 10% from last year, it remains well below 2019 levels.

Overall, today’s oil and gas spending is caught between two visions of the future, says the IEA – it is too high for a pathway aligned with limiting global warming to 1.5°C but not enough to satisfy rising demand in a scenario where governments stick with today’s policy settings and fail to deliver on their climate pledges.

‘Today’s high fossil fuel prices are generating pain for many economies but are also generating an unprecedented windfall for oil and gas producers. Global oil and gas sector income is set to jump to $4tn in 2022, more than twice its five-year average, with the bulk of it going to major oil and gas exporting states,’ notes the IEA. ‘These windfalls gains provide a once-in-a-generation opportunity for oil and gas producing economies to fund the much-needed transformation of their economies, and for major oil and gas companies to do more to diversify their spending. The share of spending by oil and gas companies on clean energy is rising slowly, with what progress there is driven mainly by the European majors and a handful of other companies. Overall, clean energy investment accounts for around 5% of oil and gas company capital expenditure worldwide, up from 1% in 2019.’

The report concludes that higher and more diversified investment is needed to curb today’s price pressures and create more resilient clean energy supply chains. Worldwide exploration spending rose 30% in 2021, with the increase in the US, Canada and Latin America offering the prospect of more diversified supply in the years ahead.

Major investment needed for India to meet 2030 wind and solar goals 
Meanwhile, according to a new study from BloombergNEF (BNEF), India will require $223bn of investment in order to meet its goal of wind and solar capacity installations by 2030.

The goal is part of the five decarbonisation targets that had been announced by Indian Prime Minister Narendra Modi at COP26 in November 2021. Additionally, India aims to meet 50% of its electricity demand from renewable energy, thereby making renewable energy especially crucial in meeting the country’s 2030 and 2070 climate goals.

The report, published in association with the Power Foundation of India, finds that corporate commitments from Indian companies could help India achieve 86% of its 2030 goals of building 500 GW of cumulative non-fossil power generation capacity. By 2021, 165 GW of zero carbon generation had already been installed in the country. India’s Central Electricity Authority forecasts the country’s reliance on coal to drop from 53% of installed capacity in 2021 to 33% in 2030, whereas solar and wind together make up 51% by then, up from 23% in 2021.

India has consistently ranked among the leading emerging markets covered by Climatescope, BNEF’s report analysing market attractiveness for energy transition investment. In 2021, India ranked first in the power category among 107 emerging markets. Transparent market mechanisms, supportive policies and ambitious government targets have attracted many domestic and international players to India’s renewables market.

Commenting on the report, lead author Shantanu Jaiswal, notes: ‘The scaling up of renewables in India faces regulatory, project and financing risks, with PPA [power purchase agreement] renegotiation, land acquisition and payment delays cited as key risks by industry stakeholders surveyed by BloombergNEF. In the short-term, rising interest rates, a depreciating rupee and high inflation create challenges for the financing of renewables.’

Rohit Gadre, an analyst in BNEF’s India research team, adds: ‘Scaling up financing to meet 2030 goals requires independent power producers to tap into new or underutilised sources of capital. These could be revolving construction debt, investment infrastructure trusts and funding from retail investors, insurance companies and pension funds. Higher funding requirements also need measures that can increase the availability of financing, such as de-risking renewable projects to offering contractual terms that provide greater comfort to investors.’