While it is often assumed that renewable energy is the only game in town, the latest World Energy Investment Report showed the ongoing complexity of energy markets.
- Last year, USD 1,740bn was invested in clean energy versus USD 1,050bn into fossil fuels
- Global oil and solar production are running near neck and neck on investment in 2023.
- USD 1.7bn will be invested in clean energy, including renewable power, nuclear, grids, storage, low-emission fuels, efficiency improvements and end-use renewables and electrification in 2023.
This week, Rishi Sunak announced plans to support hydrocarbon production in the North Sea by issuing more oil and gas licences. While this came alongside balancing carbon capture initiatives, it showed that the path to net zero will not be neat - the winners and losers will ebb and flow over the next few decades.
The International Energy Agency recently issued its World Energy Investment Report showed this complexity. The report showed that while green energy providers are attracting a greater share of investment, there is still plenty of investment going into fossil fuel production - USD 1,740bn in clean energy versus USD 1,050bn into fossil fuels. Global oil and solar production are running near neck and neck on investment in 2023.
While this is partly the distorting impact of the Ukraine crisis, which has forced governments to invest in areas such as liquified natural gas to keep the lights on, this is not the whole story. Much of this new investment is coming from oil and gas industry capex – 48% of the industry’s windfall cash flows from the energy crisis is going back into traditional supply. It is worth noting that despite assurances on reinvesting in clean fuels, that accounts for only 1% of the windfall cash, compared to 39% in buybacks and dividends.
For investors, it may temper the momentum behind renewable energy in spite of initiatives such as the Inflation Reduction Act in the US and Fit for 55 in the EU. Equally, the report shows how broadly the investment on green energy is spread. 38% is spent on renewable power, but there it also sizeable investment in energy efficiency and grids. For the time being, energy capture and storage represents just 1.5% of overall spending.
The report says: “For every USD 1 spent on fossil fuels, USD 1.7 is now spent on clean energy. Five years ago this ratio was 1:1”. It adds that of the USD 2.8bn invested in energy in the year ahead, USD 1.7bn will be in clean energy, including renewable power, nuclear, grids, storage, low-emission fuels, efficiency improvements and end-use renewables and electrification. However, it may be a surprise to many that over USD 1 trillion is still spent on fossil fuels.
This argues for some caution from investors in assuming that the is only one path ahead on energy. The path to decarbonisation will be bumpy and fossil fuels will continue to attract their share of investment.
