Financing clean energy initiatives is pivotal to advancing the shift towards sustainable and renewable energy sources. Effective financing strategies that support research and development efforts and facilitate the roll-out of renewable energy technologies are essential for driving the energy transition.
BloombergNEF (BNEF) has recently released a report titled “Energy Transition Investment Trends 2024”, which provides an annual review of global investments in the low-carbon energy transition. Apart from focusing on energy transition investments aimed at deploying clean technologies such as renewable energy, electric vehicles (EVs), power grids and hydrogen, the report examines investments in the clean energy supply chain, venture capital, private equity and public market investments in climate-tech firms. The report also includes debt issuance for energy transition. Renewable Watch presents the key takeaways from the report…
Sector-wise and regional investment breakdown in global energy transition
According to the report, investments in the global shift towards low-carbon energy rose by 17 per cent in 2023, reaching a total of $1.77 trillion. A key insight from the report is the dominance of electrified transport as the primary sector for investment in the energy transition. With a significant 36 per cent growth in 2023, the sector attracted $634 billion in spending, covering expenses related to EVs such as cars, buses, two- and three-wheelers, as well as related infrastructure. Investments in electrified transport surpassed those in the renewable energy sector, which witnessed an 8 per cent increase, reaching $623 billion in investment.
Investments in the renewable energy sector included the development of facilities such as wind, solar and geothermal power plants, alongside biofuel production plants. Power grid infrastructure attracted the third highest investment, amounting to $310 billion. The inclusion of power grids in Bloomberg’s analysis since 2020 significantly enhances the overall figures. Additionally, there was significant growth in emerging areas such as hydrogen, with investment tripling year on year, carbon capture and storage (CCS) nearly doubling, and energy storage increasing by 76 per cent.
Investments in nuclear ($33 billion), electrified heat ($63 billion) and clean shipping ($385 million) witnessed a marginal reduction compared to the previous year. However, all other sectors exhibited strong growth. Hydrogen tripled to $10.4 billion, while CCS nearly doubled to $11.1 billion. Energy storage increased by 76 per cent to $36 billion, and the clean industry expanded by 7 per cent to $49 billion.
All three regions under consideration – the Americas, Asia Pacific, and Europe, the Middle East and Africa – reached previously unprecedented levels of investment in energy transition for the fourth consecutive year. Europe, the Middle East and Africa recorded the highest growth rate in 2023, rising by 38 per cent to $542 billion. This surge was propelled by exceptional solar energy performance across Europe, continuous EV market expansion, and considerable increases in hydrogen, CCS and clean industrial investments.
With $840 billion in investment, Asia Pacific maintained the largest share despite a relatively moderate 7 per cent increase. Its global investment share decreased due to reduced investments in renewable energy. The Americas remained the smallest region in terms of investment, which increased 15 per cent to reach $387 billion in 2023, primarily due to the impacts of the Inflation Reduction Act.
Leading economies for 2023
China remains the largest market for energy transition spending, at $676 billion, accounting for 38 per cent of the global total, despite minimal growth in 2023. The US is the second largest destination for energy transition investment, totalling $303 billion in 2023. The impact of the Inflation Reduction Act is beginning to be felt, leading to a narrowing gap with China.
Germany maintains its position as the third-largest economy for energy transition investment, with a focus on electrified transport. Among the top 10, five European countries are present, with four being European Union member states. The EU collectively invested over $341 billion in 2023, surpassing the US. Additionally, the UK’s investment of $74 billion contributes to the European total, exceeding $400 billion. This collectively places the US, the EU and the UK ahead of China in terms of investment for 2023, a shift from the previous year. Brazil, Japan and India are also significant players in the top 10, each receiving over $30 billion in investments.
Future outlook
The report highlights that the current level of investment in clean energy technologies is insufficient for achieving net zero emissions by mid-century. According to BNEF’s net zero scenario, which aligns with the Paris Agreement, investment in the energy transition would need to average $4.8 trillion per year from 2024 to 2030 – nearly three times the total investment observed in 2023. To meet the Paris Agreement goals, annual investment and expenditure in electrified transport, renewable energy, energy storage and power grids must more than double the current rates from 2024 to 2030. In the net zero scenario, investment surges to $6.59 trillion annually in the 2030s, marking a fourfold increase from 2023 levels. Subsequently, the total rises by 15 per cent to $7.59 trillion per year in the 2040s, with electrified transport expenditure representing the majority share at 56 per cent, equivalent to $4.26 trillion annually.
The report also highlights a significant increase in investment in the global clean energy supply chain, encompassing equipment factories and battery metal production. In 2023, this sector reached a new milestone of $135 billion, up from $46 billion in 2020, with projections indicating a further increase to $259 billion by 2025 based on current investment plans. Investment plans suggest a 66 per cent increase from 2023 to 2024, primarily due to a growing number of battery gigafactories in the pipeline. While investment in battery metals accounted for only 11 per cent of the total in 2023, projections indicate that this could increase to 18 per cent by 2026 based on announcements. However, mines typically have longer lead times and are planned much earlier compared to solar module factories, whose plans are often disclosed only a few months before they begin operations. Consequently, there is limited visibility on investments in solar factories for 2026-27.
Apart from this, investment levels in the supply chain currently surpass immediate requirements to achieve net zero emissions by 2050. The factory additions last year exceeded the annual investment needed through 2030, primarily due to solar overcapacity. According to the net zero scenario, yearly spending should average only 55 per cent of the investment in 2023. A significant pipeline of lithium-ion factories has been announced, as achieving net zero will necessitate a substantial expansion in battery manufacturing. Battery plants account for approximately 70 per cent of the spending required between 2024 and 2030. Interestingly, the current oversupply of solar indicates that no new factories will be needed by 2030. This surplus in supply will exert pressure on solar module prices for years to come and diminish the argument for localising production in markets with limited existing solar manufacturing.
Energy transition-exposed companies experienced a similar trend in debt issuance as the broader market. In 2023, there was a 4 per cent increase in debt issued for purposes related to energy transition, aligning with the overall growth of the corporate debt market, which rebounded by 4 per cent following a significant contraction in the previous year.
Conclusion
The insights provided on clean energy investment’s future highlight both progress and challenges in the global transition towards sustainable and renewable energy sources. While the significant investment growth in sectors such as electrified transport, renewable energy and the clean energy supply chain is promising, there are areas of oversupply and challenges, particularly in solar manufacturing. Moreover, achieving net zero emissions by mid-century requires a substantial increase in annual investment, according to BNEF’s net zero scenario. This emphasises the importance of scaling up investment efforts to align with the Paris Agreement goals and address pressing climate challenges. Moving forward, concerted efforts from governments, investors and industry stakeholders will be essential to mobilise capital effectively and accelerate the transition towards a cleaner and more resilient energy landscape.
