Although investment in clean energy technologies is significantly outpacing spend on fossil fuels, states the IEA, one area of concern that needs more attention is that of grid infrastructure and network planning, which risks underdevelopment as more renewable energy continues to come online.
This is according to the IEA, who have released their latest World Energy Investment 2023 report, finding that cleantech investment is steadily outpacing that of fossil fuels.
Growing investments and grid infrastructure are a concern
During a press debriefing held today on the report’s release, IEA executive director Fatih Biroll commented on the report’s main takeaways:
“A key finding is that five years ago, global energy investments…totalled $2 trillion. Out of this, $1 trillion went to fossil fuels and $1 trillion to clean energy. It was 1:1. This year, according to our report, the amount of investment going to fossil fuels is still around $1 trillion and for clean energy it has increased to $1.7 trillion.
“This is a dramatic shift in the world of energy. There is a powerful alignment of three powerful factors: First, the cost of mature clean energy technology is becoming competitive almost everywhere in the world. Second, government policies…third, industry strategy; it is a very clear fact that the future of the industry sector is clean energy technology and manufacturing.”
Also speaking on the report was Tim Gould, the IEA’s chief energy economist, who highlighted how grid investment and network planning needs to be more readily recognised as a crucial element:
“Something has shifted. Responding to those three factors has boosted investment… This is a broader story in the growth of clean energy technology. This has been moving fast and we’re expecting continued growth in 2023.
“However there are headwinds…If I had to highlight one thing that we need to be paying very close attention to, which doesn’t always get the attention it deserves, it’s the question of electricity networks. In a world where you can build a new utility-scale renewable project in two years, but new grid projects typically take at least double that, it’s clear that network planning needs to be running ahead of the curve in order to avoid being a constraint on growth. And that is often not the case.
“If we cannot expand grid infrastructure in a timely way, this can be an important limiting factor for renewable investment in the future.”
According to the IEA’s latest report, $2.8 trillion is set to be invested globally in energy in 2023, of which more than $1.7 trillion is expected to go to clean technologies – including renewables, electric vehicles, nuclear power, grids, storage, low-emissions fuels, efficiency improvements and heat pumps.
The remainder, slightly more than $1 trillion, is going to coal, gas and oil.
Annual clean energy investment, they find, is expected to rise by 24% over the 2021 to 2023 forecast period, driven by renewables and EVs, compared with a 15% rise in fossil fuel investment over the same period.
Clean energy investments have been boosted by a variety of factors, including:
• Improved economics at a time of high and volatile fossil fuel prices
• Enhanced policy support through instruments like the US Inflation Reduction Act and new initiatives in Europe, Japan, China and elsewhere
• A strong alignment of climate and energy security goals
• A focus on industrial strategy as countries seek to strengthen their footholds in the emerging clean energy economy.
According to the investment report, in 2023 low-emissions power is expected to account for almost 90% of total investment in electricity generation. More than $1 billion per day is expected to go into solar investments in 2023 ($380 billion for the year as a whole), edging this spending above that in upstream oil for the first time.
Consumers are also investing in more electrified end uses.
Demand for electric cars is booming, with sales expected to leap by more than one-third this year after a record-breaking 2022. As a result, investment in EVs has more than doubled since 2021, reaching $130 billion in 2023. Global sales of heat pumps have seen double-digit growth since 2021.
Led by solar, low-emissions electricity technologies are expected to account for almost 90% of investment in power generation. Consumers are also investing in more electrified end-uses. Global heat pump sales have seen double-digit annual growth since 2021. EV sales are expected to leap by a third this year after already surging in 2022.
Although the increase in annual investment is promising, the IEA also points to how more than 90% of this comes from advanced economies and China, presenting a serious risk of new dividing lines in global energy if clean energy transitions don’t pick up elsewhere.
In comparing 2022 spend by top global players, China was found to invest the most, with $180 billion invested in clean energy. The EU came second at $154 billion, followed by the US at $97 billion and then Japan at $28 billion.
The report also draws a note of caution on clean energy spending, emphasising that the positive momentum behind clean energy investment is not distributed evenly across countries or sectors, highlighting issues that policymakers will need to address to ensure a broad-based and secure transition.
These investments, they state, often require high upfront spending, making the cost of financing a crucial variable for investors, even if this is offset over time by lower operating costs.