Global energy investment: Milestones, challenges, and the path to sustainability

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Synopsis  The global energy investment landscape has reached a historic milestone in 2024, surpassing $3 trillion, with $2 trillion directed toward clean energy technologies. Solar photovoltaic (PV) leads this transformation, attracting significant investment, alongside growth in battery storage and electrification. While advanced economies like the U.S. and Europe are driving the shift, emerging markets face challenges, with financing gaps and infrastructure deficits hindering their progress. Despite the rise in clean energy, fossil fuels remain entrenched, with investments in oil and gas still substantial. An IEA report highlighted these trends, pointing to the crucial role of policy incentives, energy security concerns, and technological advancements in shaping the future. To ensure a balanced transition, increased investment in grids, energy efficiency, and low-emissions technologies is essential, particularly in developing regions, to meet global climate goals and foster equitable growth. Image courtesy: IEA

In 2024, global energy investment will exceed $3 trillion annually for the first time, a record-breaking milestone that signals the world’s commitment to transforming its energy systems. Of this massive sum, $2 trillion will be directed toward clean energy technologies, with solar photovoltaic (PV) alone expected to attract more than $500 billion in investment. This marks a critical pivot from fossil fuels, as economies race to meet ambitious climate goals, driven by declining renewable costs and bold policy interventions.

Yet, while progress is remarkable, it is not universal. Emerging markets and developing economies (EMDEs) outside China still receive just 15% of global clean energy investments, exposing a deep inequity. With global challenges such as rising energy demand, geopolitical instability, and climate change intensifying, the decisions made today will reverberate for decades.

A year of record investments

Global energy investment crossing the $3 trillion threshold represents more than just a numerical milestone — it’s a reordering of priorities. Since 2020, clean energy investment has surged, far outpacing fossil fuels. The ratio of clean energy to unabated fossil fuel investments has shifted dramatically, from 2:1 in 2015 to 10:1 in 2024.

Several factors underpin this transformation. The cost of solar panels has declined by 30% over the past two years, while the prices of critical minerals for batteries have stabilized following the spikes witnessed during the pandemic. Policy support has also played a pivotal role, with initiatives like the U.S. Inflation Reduction Act (IRA) and Europe’s Green Deal catalyzing investments and making renewables more financially attractive. Additionally, the war in Ukraine and disruptions to global supply chains have heightened the need for energy security, driving nations to prioritize self-reliant and sustainable energy systems. Despite these advances, global fossil fuel investment will still reach $1 trillion in 2024, reflecting ongoing demand and the complexities of transitioning away from entrenched systems.

In examining global energy trends, the World Energy Investment2024 report highlights the growing shift toward clean energy, with solar, battery storage, and electrification leading the charge. This unprecedented investment surge reflects the broader commitment to a sustainable future, even as challenges remain, particularly in emerging economies where financing gaps persist.

Regional disparities: A two-speed transition

China: The global leader in clean energy: China’s clean energy investments will reach $680 billion in 2024, solidifying its dominance in renewable technologies. With the world’s largest manufacturing capacity for solar panels, wind turbines, and batteries, China is also the top market for electric vehicles (EVs). Its aggressive industrial policies have propelled its 'new three' sectors — solar PV, EVs, and lithium battery production — to global prominence.

China’s success demonstrates the power of government-backed industrial strategies. However, its continued investments in coal and oil signal an ongoing reliance on traditional energy sources, particularly to ensure grid stability and meet rising demand.

The United States and Europe: Strong, strategic investments — The U.S. has emerged as a clean energy powerhouse, with investment climbing to $300 billion in 2024. The IRA has incentivized domestic manufacturing, grid modernization, and EV deployment. Similarly, the European Union, with its $370 billion in clean energy investments, is prioritizing hydrogen projects, offshore wind, and building efficiency.

Yet, both regions face challenges. In the U.S., partisan divides over climate policy could slow progress, particularly in states that remain heavily reliant on fossil fuels. Meanwhile, in Europe, the energy crisis triggered by Russia’s invasion of Ukraine has exposed vulnerabilities in energy security, necessitating a delicate balance between long-term climate goals and the immediate need for stable, affordable energy supplies.

Emerging markets: Uneven progress — India is a rare bright spot among EMDEs, with robust policies driving renewable energy investments to $60 billion in 2024. Large-scale solar and wind projects, supported by public-private partnerships, have positioned India as a leader in renewable energy capacity additions.

However, in much of Africa, Latin America, and Southeast Asia, progress is slower. Africa’s clean energy investments have doubled since 2020, reaching $40 billion, but this pales in comparison to the continent’s energy needs. High financing costs, inadequate infrastructure, and limited access to international capital markets are persistent barriers.

The persistent role of fossil fuels

Despite the clean energy momentum, fossil fuels remain deeply entrenched. Oil and gas investment will climb to $570 billion in 2024, driven largely by Middle Eastern and Asian national oil companies. These entities view fossil fuels as critical for short-term energy security and economic stability, even as the world moves toward net-zero emissions.

The IEA warns of the risks of over-investment in fossil fuels, particularly as demand stabilizes. Already, global spare oil production capacity is approaching 6 million barrels per day, raising the spectre of stranded assets. Coal, too, remains a challenge. China’s approval of over 50 GW of new unabated coal-fired power capacity in 2023 — the most since 2015 — contrasts sharply with global decarbonization goals.

To meet net-zero targets, annual fossil fuel investment must fall by 50% by 2030, while spending on low-emissions fuels like hydrogen and bioenergy needs to grow tenfold.

Clean energy innovations: Solar, storage, and beyond

Solar PV: The cornerstone of renewables — Solar PV will attract over $500 billion in investments in 2024, making it the leading power generation technology worldwide. Declining costs, coupled with policy incentives, have accelerated solar adoption. In India, for example, solar has achieved grid parity with coal, while the U.S. IRA has revitalized domestic solar manufacturing.

Battery storage: Enabling Intermittent Renewables — Investments in battery storage are set to exceed $50 billion in 2024, reflecting its critical role in supporting grid stability and renewable integration. However, spending is concentrated in advanced economies and China. In EMDEs, investment in storage technologies remains minimal, underscoring the need for targeted financial and technical support.

Hydrogen: The Next Frontier — Low-emissions hydrogen is gaining traction, with investment in hydrogen electrolysis reaching $3 billion annually. Countries like Japan, Germany, and Australia are leading the charge, but widespread adoption hinges on reducing production costs and building infrastructure.

Financing the energy transition

The role of development finance — Development finance institutions (DFIs) have become pivotal in addressing financing gaps, particularly in high-risk markets. DFIs mobilized $31 billion for clean energy in 2022, with Africa and Southeast Asia among the largest beneficiaries.

However, DFI financing is largely debt-based, with limited use of equity or grants. Expanding concessional financing and risk guarantees could unlock greater private sector participation, particularly in regions with high borrowing costs.

Local solutions — Innovative approaches are emerging in EMDEs. In Nigeria, InfraCredit has mobilized $206 million from domestic pension funds for clean energy projects. Similarly, India’s renewable energy auctions have attracted private capital by de-risking investments.

Yet, financing remains a significant challenge. Interest rates in EMDEs are often double those in advanced economies, making renewable projects less attractive to private investors. Addressing this disparity is crucial to scaling global clean energy efforts.

Grids and infrastructure: The backbone of the transition

Grid modernization is a critical yet underfunded component of the energy transition. Global grid spending will reach $400 billion in 2024, driven by advanced economies and China. Latin America, too, is making progress, with grid investments doubling in Brazil and Chile since 2021.

However, many EMDEs face severe infrastructure deficits. Without substantial investment in grids and storage, renewable energy integration will remain constrained. The IEA estimates that $500 billion annually will be needed by 2030 to ensure global grid reliability.

Electrification and Energy Efficiency

Transport: The rise of electric vehicles — Electric vehicle (EV) sales are driving an 8% increase in transport-related investments in 2024. China leads the way, followed by Europe and the U.S., where EV adoption is accelerating due to subsidies and infrastructure development.

Buildings and Industry: Efficiency gaps — While transport is surging, investments in energy efficiency for buildings and industry are lagging. Spending on building retrofits fell in 2023 and is expected to decline further in 2024, despite the sector’s significant potential for emissions reduction.

Doubling efficiency improvements by 2030 will require a threefold increase in current spending, underscoring the need for stronger policy support.

COP29: A turning point

As global leaders convene for COP29, the urgency of scaling clean energy investments has never been clearer. Current trends fall short of the levels needed to limit global warming to 1.5°C.

To achieve net-zero emissions by 2050, annual renewable investment must double to $1.5 trillion by 2030, while efficiency spending must triple. The IEA emphasizes that bridging the investment gap in EMDEs is critical — not only for climate goals but also for global energy equity.

Emerging debates and counterarguments

The energy transition has sparked heated debates about growth, equity, and sustainability. Critics argue that the push for renewables could overlook the immediate energy needs of developing regions, where access to electricity remains a pressing issue. Others warn of economic disruptions from phasing out fossil fuels too quickly.

Proponents counter that clean energy offers long-term benefits: reduced emissions, improved energy security, and greater economic resilience. Reports like IEA's report note that investments in renewables now yield 2.5 times more energy output per dollar than fossil fuels did a decade ago.

A pivotal decade

The global energy transition represents an unprecedented opportunity to redefine the future of energy. While the path forward is fraught with challenges, the tools and resources needed to succeed are within reach.

By fostering innovation, addressing regional disparities, and scaling investments, the world can navigate this transformation and secure a sustainable future for all.

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