Global investment in the transition reaches record high – but still not enough

Global investment in the energy transition totalled $755mn in 2021. This was a new record, signalling rising climate ambition and serious policy initiatives from countries worldwide, according to a new report from BloombergNEF: Energy Transition Investment Trends in 2021.

Investment rose in almost every sector, including renewable energy, energy storage, electrified transport, electrified heat, nuclear, hydrogen and sustainable materials. However, and interestingly, only carbon capture and storage (CCS) recorded a dip in investment, though many new projects were announced, says the report.

A new record investment of $366bn was committed to renewables in 2021, up 6.5% from the year before. But electrified transport was the second largest sector with $273bn invested, as electric vehicle (EV) sales accelerated at 77% in 2021, and look set to overtake renewable energy investment in 2022, according to the analysts. The next largest sectors of spending were electrified heat at $53bn and nuclear energy at $31bn.

Cumulatively, clean power and electrification (including renewables, nuclear, energy storage, electrified transport and heat ie heat pumps) accounted for $731bn, while new developments such as hydrogen, carbon capture and sustainable materials made up $24bn.

Bloomberg analyst Albert Cheung noted that: ‘The global commodities crunch has created new challenges for the clean energy sector, raising input costs for key technologies like solar modules, wind turbines and battery packs.’ Against this background, he recognised that a 27% increase in energy transition investment last year: ‘is an encouraging sign that investors, governments and businesses are more committed than ever to the low-carbon transition.’

Looking regionally, Asia-Pacific was both the largest area of investment at $368bn (nearly half the global total), and the region with the highest growth at 38% in 2021, driven by electrified transport which doubled last year. Energy transition investment in Europe, Middle East and Africa grew 16% in 2021, to reach $236bn, while the Americas saw investment grow 21% to $150bn.

China was the largest single country, committing $266bn in 2021; with the US in second place with $114bn, though EU member states together committed $154bn. Germany, the UK and France were in the top five countries for energy transition investment.

However, BloombergNEF’s New Energy Outlook notes that, in three alternative scenarios for reaching global net zero by 2050, investment levels need to roughly triple – on average at $2.1tn/y between 2022 and 2025 in order to keep global warming to about 1.7°C, and need to double again between 2026 and 2030.

The analysts suggest that at current growth rates, the electrified transport sector has the best chance of getting on track to meet such investment levels, whereas other sectors look less likely to meet the challenge.

On a dark note, Matthias Kimmel, Head of Energy Economics at BNEF, reflected: ‘The world is rapidly running out of carbon budget to meet the goals of the Paris Agreement. The energy transition is well underway, and moving faster than ever, but governments will need to mobilise much more finance in the next few years if we are to get on track for net zero by 2050.’