Solar power is set to receive more investment from oil production for the first time this year as global investment in clean energy is on course to rise to $1.7 trillion in 2023, according to the latest report from the International Energy Agency (IEA). The Paris-based intergovernmental organisation in its report, published on Thursday, said that investment in clean energy technologies is significantly outpacing spending on fossil fuels as affordability and security concerns triggered by the global energy crisis strengthen the momentum behind more sustainable options.
However, it also noted that the level of annual investment will need to roughly double by 2030 to put the world on track to have a chance to limit global warming to 1.5C.
“About $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,” according to the IEA’s latest World Energy Investment report. The remainder, slightly more than $1 trillion, is going to coal, gas, and oil.
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IEA said that annual clean energy investment is expected to rise by 24 per cent between 2021 and 2023, driven by renewables and electric vehicles, compared with a 15 per cent rise in fossil fuel investment over the same period.
However, it also warned that more than 90 per cent of this increase 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.
“Clean energy is moving fast – faster than many people realise. This is clear in the investment trends, where clean technologies are pulling away from fossil fuels. For every dollar invested in fossil fuels, about 1.7 dollars are now going into clean energy. Five years ago, this ratio was one-to-one. One shining example is investment in solar, which is set to overtake the amount of investment going into oil production for the first time,” said IEA Executive Director Fatih Birol.
“Led by solar, low-emissions electricity technologies are expected to account for almost 90 per cent 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. Electric vehicle sales are expected to leap by a third this year after already surging in 2022,” the energy agency said.
Behind this investment boost are factors like strong economic growth, volatile fossil fuel prices, raising concerns about energy security following Russia’s invasion of Ukraine, enhanced policy support through major actions like the US Inflation Reduction Act and initiatives in Europe, Japan, China, and elsewhere, the report noted.
Nonetheless, IEA said that the expected rebound in fossil fuel investment. It is set to rise in 2023 to more than double the levels needed in 2030 in the IEA’s Net Zero Emissions by 2050 Scenario. That would have to start falling sharply this decade to be in line with the IEA’s scenario that would see the planet reach net-zero emissions by the middle of the century.
Spending on upstream oil and gas is expected to rise by 7 per cent in 2023, taking it back to 2019 levels. The few oil companies that are investing more than before the Covid-19 pandemic are mostly large national oil companies in the Middle East. Many fossil fuel producers made record profits last year because of higher fuel prices, but the majority of this cash flow has gone to dividends, share buybacks and debt repayment – rather than back into traditional supply, the report noted.
The biggest shortfalls in clean energy investment are in emerging and developing economies. There are some bright spots, such as dynamic investments in solar in India and in renewables in Brazil and parts of the Middle East, the report said.
“However, investment in many countries is being held back by factors including higher interest rates, unclear policy frameworks and market designs, weak grid infrastructure, financially strained utilities, and a high cost of capital. Much more needs to be done by the international community,” the report said.