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Capital spending levels are far from sufficient to address the energy and climate issues, owing to renewables and energy efficiency, as well as rising costs.
FREMONT, CA: According to a recent estimate by the International Energy Agency, global energy investment expanded by eight percent in 2022 and reached USD 2.4 trillion sizes, with the anticipated increase coming primarily in renewable energy. The growth investment, while positive, is still far from sufficient to address the various aspects of the current energy problem and pave the way for a cleaner and more secure energy future.
According to the IEA's World Energy Investment 2022, the power sector—primarily in renewables and grids—is seeing the strongest rise in energy investment. The majority of the increase in renewable energy spending, however, is concentrated in advanced economies. And in other markets, worries about energy security and high costs are driving more investment in sources of fossil fuels, most notably coal.
The only long-term solution is a large increase in investment to hasten the transition to sustainable energy. In the five years following the 2015 signing of the Paris Agreement, clean energy investment increased by barely two percent annually. However, the growth rate has dramatically risen to 12 percent since 2020. Government fiscal assistance and the emergence of sustainable finance, particularly in industrialised nations, have supported spending. More than 80 percent of all investments in the electricity sector are currently made in renewables, grids, and storage. Spending on solar PV, batteries, and electric cars is already expanding at rates commensurate with realising worldwide net zero emissions by 2050.
But a significant portion of the overall increase in investment can also be attributed to constrained supply networks. Costlier labour, services, and supplies like cement, steel, and essential minerals account for about half of the overall rise in spending. Some energy businesses are being discouraged from increasing their spending more quickly because of these difficulties.
Spending on several developing technologies, such as batteries, low-emission hydrogen, and carbon capture, utilisation, and storage, is currently growing quickly from a low foundation. In 2022, spending on battery energy storage is anticipated to more than double, reaching close to USD 20 billion.
However, despite some promising signs, renewable energy spending in emerging and developing economies has remained flat since the Paris Agreement was signed. Public funds for a sustained recovery are hard to come by, policy foundations are sometimes flimsy, economic gloom is forming, and borrowing rates are rising. To increase the levels of investment and close growing regional gaps in the rate of energy transition investment, much more must be done, including by international development organisations.
