Costs, renewables drive global energy investment: IEA

Global energy investment will rise by more than 8pc in 2022 to $2.4 trillion, boosted by an increase in clean energy spending, but almost half of the increase is linked to higher costs, the IEA said today in its World Energy Investments 2022 report.

It expects investment in clean energy, including in energy efficiency, to surpass $1.4 trillion and account for almost three-quarters of the overall rise. While this represents an annual growth rate of 12pc, IEA executive director Fatih Birol said it is "not strong enough to lift us out of the current energy crisis." The IEA said it falls short of what is required to reach net zero emissions by 2050, and is concentrated in China and in advanced economies.

China invested the most in clean energy in 2021 at $380bn, followed by the EU with $260bn and the US with $215bn.

Clean energy investment is mainly driven by the power sector, where renewables, storage and grids account for 80pc of spending, while investment in oil, gas, coal and "low-carbon fuel" remains below 2019 levels. Investment in the power sector is the closest to a sustainable trajectory, the IEA said, but it put the need for annual spend of more than $2 trillion this decade to reach net zero by 2050.

Spending on newer technologies such as battery storage, low-emissions hydrogen and carbon capture and storage (CCS) remains lower in a relative sense, but growth rates are high. The IEA said plans for around 130 CCS projects in 20 countries were announced in 2021.

Cost inflation effects

The IEA projects global investment in fuel supply, including oil, gas, coal and low-emissions fuels, will be around $850bn in 2022, higher on the year but marginally lower than 2019. It projects spending on upstream oil and gas at just over $400bn — higher than the past two years but below 2019, and with most of this down to increased costs.

It said most upstream spending will be on existing fields, although investment in new fields is on an upward trend.

The IEA projects that oil and gas industry investment in clean energy will double in 2022, led by European majors, and primarily focused on wind. High energy prices "are generating an unprecedented windfall", it said, with estimated oil and gas producer profit at a record $4 trillion in 2022, double on the year.

This presents a "once-in-a-generation opportunity for producer economies to fund diversification activities and for the major oil and gas companies to deliver more diversified spending," the IEA said, with the forecast additional $2 trillion able to fund almost a decade of investment in low-emissions fuels — such as biogas and hydrogen — and CCS under the IEA's net zero by 2050 scenario.

"The world needs oil and gas companies to be part of the solution," Birol said. It is the task of governments to work out "how these windfall revenues can be channelled into clean energy spending," with windfall taxes one way to do so, he said.

Energy security colours investment decisions

But "fuel supply investment is currently viewed through an energy security lens," the IEA said, and the global energy crisis has spurred investment in the expansion of coal supply in emerging Asia-Pacific countries. Around $105bn was invested in the coal supply chain in 2021, a rise of 10pc on the year, and the IEA expects a further 10pc rise this year, largely driven by China — which is rapidly adding to its domestic coal-fired power generation — and India.

Birol said this is an "alarm bell", but should be a temporary change.

Globally, final investment decisions (FIDs) on unabated fossil fuel power generation decreased in 2021, mostly because of a reduction in natural gas-fired capacity. But FIDs on coal power generation held broadly steady to 2020 levels, with around 30GW approved in 2021 mostly in China and southeast Asia, the report showed. FIDs for renewable power capacity hit a new record high at just over $300bn, with wind and solar making up the vast majority.

Cost inflation, including in supply chains, may limit private sector spending, the IEA said. Surging prices for critical minerals are likely to force costs up for clean technologies such as batteries and wind and solar, it said.

Sustainable or 'green' financing remains concentrated in advanced economies, IEA data show. Sustainable debt of more than $1.7 trillion was issued in 2021, with most green bonds funding renewables and low-carbon buildings and transport. But the organisation recommended more green finance be directed at emerging economies. It wants taxonomies and climate reporting to be standardised, and said some investment must be channelled towards carbon-intensive projects, to enable the transition.

By Georgia Gratton