An estimated 8% rise in global energy investment in 2022 to $2.4 trillion, driven overwhelmingly by a 12% rise in clean energy spending, is still far from enough to tackle the energy crisis and to put the world on the path to a greener and more secure energy future.
The power generation sector, which posted the fastest growth in energy investment, centres on renewables and grids, followed by energy efficiency, the International Energy Agency (IEA) said in its recent World Energy Investment report.
Yet the current threats to energy security, such as the fallout from Russia’s invasion of Ukraine and high prices, are pushing some governments and companies to maintain and even increase investment in fossil fuels, notably coal. Investment in coal climbed by 10% in 2021 and is estimated to rise by another 10% in 2022.
Meanwhile, green investment remains concentrated in the developing economies and China.
Put simply, far from enough is being done to keep the world on course to limit global warming to 1.5 C, as called for at COP26. The current heatwaves, which first hit Asia in April and are now pushing summer temperatures in the US and Europe to record levels, are highlighting the dangers of man-made global warming, from the food supply crisis to billions of people potentially migrating to escape uninhabitable regions.
The IEA is adamant that the world has both the tools and the finances to tackle both the global energy crisis – in terms of both price and supply – and the climate crisis at the same time.
“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.”
The report stressed how clean energy investment had shot up by 12% per year since 2020, against an average of 2% per year in the previous five years.
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 (EVs) is now growing at rates consistent with reaching global net zero emissions by 2050.
Indeed, there is rapid growth from a low base in many emerging technologies, notably batteries, low emissions hydrogen, and carbon capture utilisation and storage (CCUS). These are areas that the IEA has previously identified as key to driving green energy expansion in the coming decades.
Investment in battery energy storage is expected to more than double to reach almost $20bn in 2022.
However, behind the rising investment there are some details that are less welcome. The report said almost half of the overall increase in spending was 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.
What this means is that higher investment is not equating to more green energy, but in fact could be preventing many green projects form being built.
Also clean energy spending in emerging and developing economies (excluding China) remains stuck at 2015 levels, with no increase since the Paris Agreement was reached. Exceptions to this trend include the expansion of solar in India.
The report highlighted that public funds to support a sustainable recovery are scarce in developing countries in Africa and Asia, where 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 investment levels in Africa and Asia and to bridge widening regional divergences in the pace of energy transition investment.
The most worrying fact in the report is that investment in coal rose by 10% in 2021, driven by emerging economies in Asia such as Indonesia, the Philippines and India, with a similar increase likely in 2022.
China offers contrasting developments. It has pledged to stop building coal-fired power plants abroad, but a significant amount of new coal capacity is coming onto the Chinese domestic market.
Meanwhile, Russia’s invasion of Ukraine has both pushed up energy prices for consumers and businesses and prompted importers to seek alternative sources of gas, especially from the LNG market.
Also, while oil and gas investment is up 10% from last year, it remains well below 2019 levels.
The report concluded today’s oil and gas spending is caught between two visions of the future. It is still way too high for a pathway aligned with limiting global warming to 1.5°C. On the other hand, it not high enough to satisfy rising demand in a scenario where governments stick with today’s policy settings and fail to deliver on their climate pledges. Put simply, government cannot just continue invest as they have been doing. There needs to be radical changes to meet demand for energy while grappling with energy prices.
The EU, for example, has in many ways followed the example of the IEA by pushing forward its Green Deal and Fit for 55 programmes, which aim to radically restructure Europe’s energy systems in the long term, while also reducing CO2 emissions by 55% by 2030.
However, some national governments are backsliding. Hungary has led opposition to an EU ban on fossil fuel imports from Russia. Germany was the slowest to support a gradual ban on gas, and it has had to switch some of its shuttered coal-fired power plants back on.
The German government on June 23 said that despite its decision to rely more on coal for electricity generation until 2024, it would still meet its target date for a complete coal exit of 2030.
Germany’s decision to power up its coal power plants came after Gazprom cut deliveries to Germany via the Nord Stream gas pipeline earlier in June.
Russia has cut capacity through the main pipeline to Germany by 60% since last week, claiming EU sanctions have caused maintenance problems, the Financial Times reported.
The IEA report also pinpointed the fact that investment in critical minerals, crucial for a range of renewable technology, was growing.
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.