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Global energy investment is rising, but too slowly – IEA
Worldwide Finance
Global energy investment is set to increase by 8% in 2022 to reach $2.4 trillion, driven by renewables and energy efficiency, with the anticipated rise mainly in clean energy, according to ‘World Energy Investment 2022’, a new report from the International Energy Agency. Although encouraging, says the IEA, the growth in investment is still far from enough to tackle the multiple dimensions of today’s energy and climate crises and pave the way towards a cleaner and more secure energy future. The fastest growth in energy investment is coming from the power sector – mainly in renewables and grids – and from energy efficiency. The rise in clean energy spending is not evenly spread, however, with most of it taking place in advanced economies and China. In some markets, energy security concerns and high prices are promoting investment in fossil fuel supplies, most notably in coal. “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.”
Clean energy investment grew by only 2% a year in the five years after the Paris Agreement was signed in 2015. But since 2020, the pace of growth has accelerated significantly to 12%. 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 is now growing at rates consistent with reaching global net zero emissions by 2050. However, tight supply chains are also playing a large part in the headline rise in investment, though. Almost half of the overall increase in spending is a reflection of higher costs, from labour and services to materials such as cement, steel and critical minerals. From a low base, there is rapid growth underway in spending on some emerging technologies, notably batteries, low emissions hydrogen, and carbon capture utilisation and storage. Investment in battery energy storage is expected to more than double to reach almost $20 billion in 2022.
But despite some bright spots, such as solar in India, clean energy spending in emerging and developing economies (excluding China) remains stuck at 2015 levels, with no increase since the Paris Agreement was reached. Public funds are scarce, 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 these investment levels. Another warning sign comes in the form of a 10% rise in investment in coal supply in 2021, led by emerging economies in Asia, with a similar increase likely in 2022. Although China has pledged to stop building coal-fired power plants abroad, a much new coal capacity is coming onto the Chinese domestic market. Russia’s invasion of Ukraine has pushed up energy prices for many consumers and
businesses around the world, hurting households, industries and entire economies – most severely in the developing world where people can least afford it. Some of the immediate shortfalls in exports from Russia need to be met by production elsewhere, notably for natural gas, and new LNG infrastructure may also be required to facilitate the diversification of supply away from Russia. While oil and gas investment is up 10% from last year, it remains well below 2019 levels. Overall, today’s oil and gas spending is caught between two visions of the future: it is too high for a pathway aligned with limiting global warming to 1.5 °C but not enough to satisfy rising demand in a scenario where governments stick with today’s policy settings and fail to deliver on their climate pledges. Today’s high fossil fuel prices are generating pain for many economies but are also generating an unprecedented windfall for oil and gas producers. Global oil and gas sector income is set to jump to $4 trillion in 2022, more than twice its five-year average, with the bulk of it going to major oil and gas exporting states. These windfalls gains do provide a rare opportunity for oil and gas producing economies to fund the much needed transformation of their economies, and for major oil and gas companies to do more to diversify their spending. The share of spending by oil and gas companies on clean energy is rising slowly, with what progress there is driven mainly by the European majors and a handful of other companies. Overall, clean energy investment accounts for around 5% of oil and gas company capital expenditure worldwide, up from 1% in 2019.
Renewables share of electricity production still rising Worldwide Climate change
The latest International Energy Agency ‘Monthly Electricity Statistics’ report including April 2022 data shows that for total OECD membership net electricity production was 821.7 TWh in April, up by 1.3% on a year-on-year basis. Renewable electricity production reached 309.2 TWh, up by 9.8% year-on-year. The increase was largely driven by higher wind and solar power production, +24.7% and +15.0% y-o-y respectively. Hydropower production, which continued to represent the highest share (+14.8%) of the electricity mix among renewable sources, increased slightly at 121.2 TWh (+1.2% y-o-y). Fossil fuels provided 49.5% of the electricity production (406.3 TWh) in the OECD countries. Reliance on natural gas (217.9 TWh) and coal (145.2 TWh) was still high, corresponding to a 26.5% and 17.7% share in the electricity mix respectively. However, both were slightly lower, as was the nuclear contribution. Electricity production from natural gas decreased
by 4.2% in April 2022 compared to April last year. Similarly, nuclear power output amounted to 129.2 TWh in April 2022, down by 7.0% y-o-y. The standout figures came from the USA, where electricity
production from wind jumped to 46.1 TWh in April 2022 (+28.7% y-o-y), with wind power reaching a record high share of 14.8% in the electricity mix. Solar power also gained significant momentum and increased by 23.6% at 17.8 TWh, corresponding to a 5.7% share in the electricity mix, an all-time high for the country. This reflects the general trend observed over the last years in the United States, where generation from renewables has been steadily increasing as a result of new capacity additions.
● The IEA’s Monthly Electricity Statistics features electricity production and trade data for all OECD Member Countries and electricity production data for a selection of other economies. The latest dataset may be downloaded from the IEA website.
6 | July/August 2022 |
www.modernpowersystems.com
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