Clean energy investments worldwide need to accelerate more rapidly to achieve climate goals despite an approximate 10% recovery this year to $1.9 trillion, reversing most of last year’s declines caused by the COVID-19 pandemic, according to a new report by the International Energy Agency (IEA) on Wednesday.
Energy investments globally saw a one-fifth year-on-year fall last year due to the COVID-19 pandemic.
Regardless, as global energy investments are returning to pre-crisis levels, the shift in investments towards renewables is dominating new power generation capacity and is expected to account for 70% of the total this year, the IEA said.
As a result, 2021 is on course to be the sixth consecutive year in which investments in the power sector exceeds that of traditional oil and gas supply.
Although this is good news, Fatih Birol, the IEA’s executive director warned that “much greater resources have to be mobilized and directed to clean energy technologies to put the world on track to reach net-zero emissions by 2050.”
"The rebound in energy investment is a welcome sign, and I am encouraged to see more of it flowing towards renewables,” he said but cautioned that clean energy investment will need to triple by 2030 based on the new net-zero roadmap.
The gap between today’s investment trends and the needs of climate-driven scenarios is particularly large in emerging market and developing economies, the IEA said.
The report found that while renewables dominate new power investment and approvals for coal-fired plants are some 80% below where they were five years ago, coal is still not out of the picture.
"There was even a slight increase in go-aheads for coal-fired plants in 2020, driven by China and some other Asian economies," the report said.
According to the IEA, financial markets also provide encouraging signs for clean energy investments and even though spending on clean energy is set to rise in 2021 by around 7%, growth in these capital expenditures has lagged changes in financial markets, in part due to a shortage of high-quality clean energy investment opportunities and appropriate channels for allocating capital into projects.
"The overall anticipated $750 billion to be spent on clean energy technologies and efficiency in 2021 is encouraging but remains far below what’s required to put the energy system on a sustainable path," the report read.
Birol advised that governments go beyond making pledges to cut emissions and take concrete steps to accelerate investments in market-ready clean energy solutions and promote innovation in early-stage technologies.
"Clear policy signals from governments would reduce the uncertainties associated with clean energy investments and provide investors with the long-term visibility they need," he said, adding that, “governments have the power to unlock bread-based benefits from the path to net zero.”
The renewable power sector is expected to see $367 billion in investments this year up from its $359 billion in 2020, and investments in the fossil fuel sector are estimated to be around $119 billion relative to $113 billion last year.
Global nuclear power investments are forecast to reach $44 billion in 2021, marking an increase of $2 billion from last year’s investments.
Investments in electricity networks and battery storage are forecast to show a significant increase and reach $293 billion this year from $265 billion in 2020. The remaining share of investment is designated for clean energy technologies, energy efficiency and other fields.
Global power sector investments overall are set to reach historic record highs with an increase of around 5% this year to more than $820 billion after a flat year in 2020, according to the report.
Global investments are estimated to reach $351 billion in upstream sectors this year, up from $326 billion in 2020, according to the IEA's World Energy Investment 2021 report.
Investments in mid and downstream are forecast to reach $252 billion from last year’s level of $197 billion, while coal investments are to remain flat at $91 billion this year.
Upstream oil and gas investments are also expected to rise by about 10% in 2021 as companies recover financially from the shock of 2020, but their spending remains well below pre-crisis levels, the report said.
- Strategies of oil and gas majors diverge
Although many oil and gas majors have announced plans for clean energy transitions to reach net zero, their strategies diverge.
According to the report, the majors are holding oil and gas spending flat on aggregate in 2021, despite recovering prices. Some national oil companies are stepping up investment, raising the possibility of increased market share if demand continues to grow.
However, the latest data signals that spending by some global companies is starting to diversify.
An IEA analysis last year highlighted that only around 1% of capital spending by the industry was going to clean energy investments.
"But project tracking to date in 2021 suggests that this could rise to 4% this year for the industry as a whole, and well above 10% for some of the leading European companies," the report said.
By Nuran Erkul Kaya