Clean energy spending to hit fresh record in 2023: IEA

Global energy investment is set to hit a record $2.8 trillion in 2023, led by another major boost in clean energy spending, the IEA said today in its World Energy Investment 2023 report.

The Paris-based energy watchdog said Russia's invasion of Ukraine and the ensuing energy crisis is accelerating momentum behind clean energy investment which continues to pull ahead of traditional fossil fuel spending. It sees clean energy spending rising by around $100bn to a record $1.7 trillion this year.

Spending on "unabated fossil fuel supply and power" is also projected to rise as companies and countries scramble for quick gains in oil and gas supply. But at just over $1 trillion, it lags clean energy investment. "For every $1 spent on fossil fuels, $1.7 is now spent on clean energy. Five years ago this ratio was 1:1," the IEA said.

Much of the growth in clean energy spending is being driven by investment in renewables, which hit a record $600bn last year and is projected to rise to around $650bn this year, according to the IEA. For the first time ever, solar power investment of $380bn is forecast to trump upstream oil spending.

Clean energy spending is being boosted by "improved economics at a time of high and volatile fossil fuel prices", the IEA said. Other factors include policy support from governments such as the US' Inflation Reduction Act and the EU's Green Deal Industrial Plan, as well as a push by countries to gain a slice of the emerging clean energy economy, it said. But it notes significant shortfalls in clean energy spending in emerging and developing economies. This presents a "serious risk of new dividing lines" in the energy transition, it said.

Windfall profits

High energy prices helped the oil and gas industry rake in record profits of $4 trillion last year, but the sector used the windfall as an opportunity to hike shareholder returns and pay down debt, rather than ramp up investment significantly, the IEA said. Although upstream oil and gas spending is seen rising by 7pc this year to more than $500bn, this is still below pre-pandemic levels, and half of the increase is accounted for by cost inflation, according to the agency. Clean energy investment by the oil and gas industry only represents a small fraction — around 5pc — of total upstream investment, it added.

Like last year, the rise in upstream oil and gas spending is being mostly driven by state-owned firms in the Middle East, such as Saudi Aramco and Adnoc, which represent the only segment of the industry investing more than before the pandemic. One key trend for the industry as a whole is a focus on so-called "advantaged" projects that can be brought online relatively quickly at "a low cost and with low emission intensities", the IEA said.

This trend has been reinforced by the need to secure alternative energy supplies, particularly in Europe, after Moscow's invasion of Ukraine cut off most of Russia's gas exports to the continent. The IEA expects a 25pc increase in conventional oil and gas resources approved for development in 2023 compared with last year. Most are gas projects, "reflecting market pressures as well as the push to substitute the shortfall in Russian deliveries", it said. The war has also prompted a big rise in investment on LNG regasification capacity, it added, with Europe's annual regasification capacity forecast to increase by 50bn m³ by 2025.

Current levels of fossil fuel investment are more than twice as high as they need to be if the world is to reach net zero emissions by 2050, the agency said. And while investment on bioenergy, hydrogen and carbon capture, utilisation and storage (CCUS) is picking up, it remains well short of levels needed for net zero, it said.

By Aydin Calik