Renewable investments extend lead over fossils with solar to eclipse oil

Worldwide investments in clean energy are on course to hit $1.7 trillion before the end of this year, with asset owners to pump more equity in solar than in oil production for the first time ever. 

In fact, investments in clean energy projects are significantly outpacing spending on fossil fuels as affordability and security concerns triggered by the global energy crisis strengthen the momentum behind more sustainable options.

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 data from the International Energy Agency (IEA).

The remainder, just over $1 trillion, is going to coal, gas and oil.

Increase in investor interest

Annual clean energy investments are expected to rise by 24% between 2021 and early next year, primarily driven by renewables and electric vehicles, compared with a 15% rise in fossil fuel investment over the same period. 

While the clean energy investment space is facing headwinds in the UK, more than 90% of this increase comes from other advanced economies and China, "presenting a serious risk of new dividing lines in global energy if clean energy transitions do not pick up elsewhere," as the IEA put it.

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“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,” said IEA executive director Fatih Birol. 

Led by solar, low-emissions electricity technologies are expected to account for almost 90% of investment in power generation. 

Clean energy investments have been boosted by a variety of factors in recent years, including periods of strong economic growth and volatile fossil fuel prices that raised concerns about energy security, especially 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 have also played a role, the IEA stressed.

Spending on upstream oil and gas is expected to rise by 7% 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 players in the Middle East.

Record profits

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.

Nonetheless, the expected rebound in fossil fuel investment means it is set to rise in 2023 to more than double the levels needed in 2030 in most net zero 2050 scenarios. 

Global coal demand reached an all-time high in 2022, and coal investment this year is on course to reach nearly six times the levels envisaged in 2030 in the IEA's Net Zero strategy.

The oil and gas industry’s capital spending on low-emissions alternatives such as clean electricity, clean fuels and carbon capture technologies was less than 5% of its upstream spending in 2022. 

That level has largely remained unchanged compared to last year, the IEA said, though the share is higher for some of the larger European companies.

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. 

However, investments in many countries are 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. 

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