The energy sector has seen rapid changes in investment patterns in recent years. Investment is shifting significantly towards technological advancements in the clean-energy segment and away from the traditional focus on fossil fuels. The main reasons for the sizable demand for clean-energy investment (CEI) are the global energy crisis, price vulnerability, policy reform, the pandemic and geopolitical conflicts. Recent energy-market analysis indicates that 61% investment in the energy sector will be in clean technologies such as regenerative and nuclear energy, grids, storage, heat pumps, low-emission fuels, efficiency enhancements, and solar power and electric vehicles (EVs). The remaining 24% and 15% of the investment will be in oil and gas, and coal, respectively.
Although the increase in CEI indicates we are on the path to energy transition, it also highlights certain serious economic and industry-specific concerns.
The energy sector has seen significant changes in investment criteria in the past five years. The figure below shows investment in renewables increasing, followed by upstream oil and gas and grid/storage and end-user efficiency.
As per the forecasts, The oil and gas sector will likely witness a more than 6% increase in fossil fuel investment this year. Upstream oil and gas is set to receive most of this increase (USD500bn). Increasing prices of fossil fuels are expected to account for 50% of this investment. Due to unpredictable changes in demand, pricing and stakeholder expectations, all major players in the sector except companies in the Middle East suggest large investments in energy generation through non-renewable sources. CEI is increasing, but only a few nations, such as China, the European Union (EU), the US, Japan, and India, are actively involved in this space. Russia has still not embraced CEI. With the significant contributions of these countries and an easing of tensions, the established clean technologies are likely to remain economical in the current fuel-price scenario compared to last year.
Other significant factors that have boosted CEI and technology growth are listed below:
- Increased investment in LNG infrastructure and alternate sources of supply due to reduced Russian gas imports to Europe.
- Rapid expansion of green hydrogen and CCUS projects because of substantial regulatory alerts and new assistance programs influenced by climate- and energy security-related concerns.
- An increase in spending in the EU on CCUS, carbon-free energy, and climate-positive policies and regulations because Russia decided to reduce natural gas exports.
- Sustainable finance has survived the oil crisis, but it will be essential to increase financial access to affluent nations. Clean energy spending amounted to USD800bn, with sustainable debt issuance of USD750bn, in 2022.
However, the energy sector needs to tackle the following challenges associated with CEI:
