Released June 22, 2022 | SUGAR LAND
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Written by John Egan for Industrial Info Resources (Sugar Land, Texas)--Global energy investment is expected to grow about 8% in 2022 to reach $2.4 trillion, mainly driven by investments in clean energy. But that boost, while encouraging, still falls well short of what is needed to ward off the threat of global climate change, according to a new report from the International Energy Agency (IEA) (Paris, France).
Click on the image at right to see an annual summary of worldwide energy investments since 2017.
In its World Energy Investment 2022 report, released June 22, the agency looks both to policymakers around the world and oil & gas companies--whose net profits this year are expected to double to about $4 trillion--for leadership in boosting clean-energy investments to a level that would keep global temperature gain to 1.5 degrees Celsius, as called for in the 2015 Paris Agreement. Global temperatures have increased about 1.1 degrees Celsius in recent years.
Investments by the electric power industry--mainly in renewable energy and transmission & distribution, but also in energy efficiency--are expected to be the fastest-growing segment of energy investments around the world this year, the IEA report said.
It noted a recent acceleration of clean-energy investments: Annual investments in clean energy grew about 2% per year in the five years after the Paris Agreement was signed in 2015. But since 2020, the annual pace of growth has accelerated "significantly" to approximately 12%.
"We cannot afford to ignore either today's global energy crisis or the climate crisis," said Fatih Birol, IEA's executive director, in a statement accompanying the release of the report on Wednesday. "But the good news is that we do not need to choose between them--we can tackle both at the same time. A massive surge in investment to accelerate clean energy transition 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."
This year, the report estimated, clean energy investments are projected to reach about $1.4 trillion, with renewable energy and energy efficiency leading the way. The IEA said global annual spending on solar photovoltaic (PV) projects, batteries energy storage systems (BESS) and electric vehicles (EVs) "is now growing at rates consistent with reaching global net-zero emissions by 2050."
Supply-chain bottlenecks and the rising prices of minerals essential for a clean-energy future are two reasons why spending on renewable energy, EVs and BESS--as strong as it is--still faces an uphill challenge. While overall energy capital outlays are expected to rise about $200 billion this year, half of that has been eaten up by higher costs.
"Costs are rising due to multiple supply-chain pressures, tight markets for specialized labor and services, and the effect of higher energy prices on essential construction materials like steel and cement," the World Energy Investment report said. "These cost pressures are most visible in fuel supply, but are affecting clean-energy technologies as well: After years of declines, the costs of solar panels and wind turbines are up by between 10% and 20% since 2020. Concerns about cost inflation are a brake on the willingness of companies to increase spending, despite the strong price signals."
Click on the image at right to see a snapshot of rising costs for solar PV modules, wind turbines and lithium-ion batteries since 2017.
Upstream oil and gas investments are projected to rise in 2022 for the third year in a row, though they are expected to be nearly $100 billion below pre-pandemic levels, the report said. The agency said it was more worried about investments in coal--both for extraction and for building new coal-fired generating capacity. Coal-related investments around the world--paced by China and India--also are expected to rise for the third consecutive year, and are projected be about $15 billion higher this year than in 2019, before the COVID-19 pandemic hit.
Click on the image at right to see how investments in fuel supply have changed since 2019.
Worldwide investment in all fossil fuels is rising, but is still almost 30% below where it was in 2015, when the Paris Agreement was signed, the report said. And although fossil-fuel prices are high currently, the report also commented that "the cyclical incentive to invest in times of high prices is being reinforced in some areas by policy drive to diversify away from Russian supply and address near-term market tensions, but there are constraints on this price responsiveness. Policy uncertainty is high, financing can be difficult to secure, and companies are generally shying away from large commitments of capital that may take many years to pay back."
The report noted: "Investment in coal supply is much less capital-intensive than oil and gas, and has been less subject to large year-on-year variations. Around $105 billion was invested in the coal supply chain in 2021, an increase of 10% year-on-year, and a further 10% rise is expected in 2022 as tight supply continues to attract new projects. This is a long way from the market situation implied by international climate goals and the Glasgow commitment (made last year) to 'phase down' coal."
"This (investment) increase is being led by China and India, the dominant players in global coal markets," the IEA report continued. "Coal shortages and power rationing in China in 2021 made energy security the main priority in near-term Chinese policy, and more than 350 (million tons) per year of new coal-mining capacity was brought on stream in the second half of the year. Although China has pledged to stop building coal-fired plants abroad, there is still significant new capacity coming onto the domestic market, with more than 20 gigawatts (of new coal-fired electric generating capacity) approved for development in both 2020 and 2021, and more than 15 gigawatts approved so far in the first half of 2022."
India also is looking to increase domestic coal supply in the face of a squeeze in 2022 that increased the use of more expensive imported coal. Other markets, including Europe, are using more coal (at least temporarily) without necessarily pushing up investment in coal supply, which is "constrained in many cases by an increasingly restrictive financial and regulatory environment."
While recognizing the surge of worldwide clean-energy investments in recent years, the IEA report nonetheless called for a "massive scale-up of investment in clean energy infrastructure" to postpone or defeat global climate change. This year's global estimated spend of $1.4 trillion in clean energy would need to be doubled, or even tripled, to reach aggressive emissions reduction targets outlined by the IEA in last year's Net Zero by 2050: A Roadmap for the Global Energy Sector. For more on the scenarios outlined in that report, see May 24, 2021, article - IIR Energy Analysts Question Feasibility of IEA Roadmap to Net-Zero Emissions.
The two more aggressive carbon-reduction scenarios developed by IEA were called APS (for Announced Pledges Scenario), the spending required to meet all country and regional climate pledges on time and in full, and NZE (for Net Zero Emissions by 2050), the spending required to get the global energy sector to net-zero by mid-century. The APS case would require doubling worldwide investments in clean energy for the remainder of this decade, to about $2.8 trillion per year. Achieving net-zero by 2050 would require slightly more than tripling current annual global investments in clean energy, to about $4.5 trillion per year, up from 2022's estimated spend of about $1.4 trillion.
Click on the image at right to see current global clean-energy spending and future spending required under two IEA scenarios.
As so, perhaps ironically, the agency casts a glance at oil and gas companies, led or perhaps forced by the actions of national governments, and in collaboration with ESG (environmental, social and governance) investors, as a potentially important funding source for the clean energy transition.
Lawmakers in the U.S. are considering a windfall profit tax on oil and gas companies, potentially following in the path of U.K. lawmakers. A slightly more market-based incentive could be the opportunity to shield some of those extraordinary profits from higher levels of taxation should they be invested in clean-energy endeavors.
Industrial Info Resources (IIR) is the world's leading provider of market intelligence across the upstream, midstream and downstream energy markets and all other major industrial markets. IIR's Global Market Intelligence Platform (GMI) supports our end-users across their core businesses, and helps them connect trends across multiple markets with access to real, qualified and validated project opportunities. Follow IIR on: LinkedIn.
Click on the image at right to see an annual summary of worldwide energy investments since 2017.In its World Energy Investment 2022 report, released June 22, the agency looks both to policymakers around the world and oil & gas companies--whose net profits this year are expected to double to about $4 trillion--for leadership in boosting clean-energy investments to a level that would keep global temperature gain to 1.5 degrees Celsius, as called for in the 2015 Paris Agreement. Global temperatures have increased about 1.1 degrees Celsius in recent years.
Investments by the electric power industry--mainly in renewable energy and transmission & distribution, but also in energy efficiency--are expected to be the fastest-growing segment of energy investments around the world this year, the IEA report said.
It noted a recent acceleration of clean-energy investments: Annual investments in clean energy grew about 2% per year in the five years after the Paris Agreement was signed in 2015. But since 2020, the annual pace of growth has accelerated "significantly" to approximately 12%.
"We cannot afford to ignore either today's global energy crisis or the climate crisis," said Fatih Birol, IEA's executive director, in a statement accompanying the release of the report on Wednesday. "But the good news is that we do not need to choose between them--we can tackle both at the same time. A massive surge in investment to accelerate clean energy transition 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."
This year, the report estimated, clean energy investments are projected to reach about $1.4 trillion, with renewable energy and energy efficiency leading the way. The IEA said global annual spending on solar photovoltaic (PV) projects, batteries energy storage systems (BESS) and electric vehicles (EVs) "is now growing at rates consistent with reaching global net-zero emissions by 2050."
Supply-chain bottlenecks and the rising prices of minerals essential for a clean-energy future are two reasons why spending on renewable energy, EVs and BESS--as strong as it is--still faces an uphill challenge. While overall energy capital outlays are expected to rise about $200 billion this year, half of that has been eaten up by higher costs.
"Costs are rising due to multiple supply-chain pressures, tight markets for specialized labor and services, and the effect of higher energy prices on essential construction materials like steel and cement," the World Energy Investment report said. "These cost pressures are most visible in fuel supply, but are affecting clean-energy technologies as well: After years of declines, the costs of solar panels and wind turbines are up by between 10% and 20% since 2020. Concerns about cost inflation are a brake on the willingness of companies to increase spending, despite the strong price signals."
Click on the image at right to see a snapshot of rising costs for solar PV modules, wind turbines and lithium-ion batteries since 2017.Upstream oil and gas investments are projected to rise in 2022 for the third year in a row, though they are expected to be nearly $100 billion below pre-pandemic levels, the report said. The agency said it was more worried about investments in coal--both for extraction and for building new coal-fired generating capacity. Coal-related investments around the world--paced by China and India--also are expected to rise for the third consecutive year, and are projected be about $15 billion higher this year than in 2019, before the COVID-19 pandemic hit.
Click on the image at right to see how investments in fuel supply have changed since 2019.Worldwide investment in all fossil fuels is rising, but is still almost 30% below where it was in 2015, when the Paris Agreement was signed, the report said. And although fossil-fuel prices are high currently, the report also commented that "the cyclical incentive to invest in times of high prices is being reinforced in some areas by policy drive to diversify away from Russian supply and address near-term market tensions, but there are constraints on this price responsiveness. Policy uncertainty is high, financing can be difficult to secure, and companies are generally shying away from large commitments of capital that may take many years to pay back."
The report noted: "Investment in coal supply is much less capital-intensive than oil and gas, and has been less subject to large year-on-year variations. Around $105 billion was invested in the coal supply chain in 2021, an increase of 10% year-on-year, and a further 10% rise is expected in 2022 as tight supply continues to attract new projects. This is a long way from the market situation implied by international climate goals and the Glasgow commitment (made last year) to 'phase down' coal."
"This (investment) increase is being led by China and India, the dominant players in global coal markets," the IEA report continued. "Coal shortages and power rationing in China in 2021 made energy security the main priority in near-term Chinese policy, and more than 350 (million tons) per year of new coal-mining capacity was brought on stream in the second half of the year. Although China has pledged to stop building coal-fired plants abroad, there is still significant new capacity coming onto the domestic market, with more than 20 gigawatts (of new coal-fired electric generating capacity) approved for development in both 2020 and 2021, and more than 15 gigawatts approved so far in the first half of 2022."
India also is looking to increase domestic coal supply in the face of a squeeze in 2022 that increased the use of more expensive imported coal. Other markets, including Europe, are using more coal (at least temporarily) without necessarily pushing up investment in coal supply, which is "constrained in many cases by an increasingly restrictive financial and regulatory environment."
While recognizing the surge of worldwide clean-energy investments in recent years, the IEA report nonetheless called for a "massive scale-up of investment in clean energy infrastructure" to postpone or defeat global climate change. This year's global estimated spend of $1.4 trillion in clean energy would need to be doubled, or even tripled, to reach aggressive emissions reduction targets outlined by the IEA in last year's Net Zero by 2050: A Roadmap for the Global Energy Sector. For more on the scenarios outlined in that report, see May 24, 2021, article - IIR Energy Analysts Question Feasibility of IEA Roadmap to Net-Zero Emissions.
The two more aggressive carbon-reduction scenarios developed by IEA were called APS (for Announced Pledges Scenario), the spending required to meet all country and regional climate pledges on time and in full, and NZE (for Net Zero Emissions by 2050), the spending required to get the global energy sector to net-zero by mid-century. The APS case would require doubling worldwide investments in clean energy for the remainder of this decade, to about $2.8 trillion per year. Achieving net-zero by 2050 would require slightly more than tripling current annual global investments in clean energy, to about $4.5 trillion per year, up from 2022's estimated spend of about $1.4 trillion.
Click on the image at right to see current global clean-energy spending and future spending required under two IEA scenarios.As so, perhaps ironically, the agency casts a glance at oil and gas companies, led or perhaps forced by the actions of national governments, and in collaboration with ESG (environmental, social and governance) investors, as a potentially important funding source for the clean energy transition.
Lawmakers in the U.S. are considering a windfall profit tax on oil and gas companies, potentially following in the path of U.K. lawmakers. A slightly more market-based incentive could be the opportunity to shield some of those extraordinary profits from higher levels of taxation should they be invested in clean-energy endeavors.
Industrial Info Resources (IIR) is the world's leading provider of market intelligence across the upstream, midstream and downstream energy markets and all other major industrial markets. IIR's Global Market Intelligence Platform (GMI) supports our end-users across their core businesses, and helps them connect trends across multiple markets with access to real, qualified and validated project opportunities. Follow IIR on: LinkedIn.
