Global investment in energy is set to rebound by nearly 10% in 2021 to $1.9 trillion, reversing most of last year’s drop caused by the COVID-19 pandemic, but spending on clean energy transitions needs to accelerate much more rapidly to meet climate goals, according to a new report from the International Energy Agency (IEA).
With energy investment returning to pre-crisis levels, its composition is continuing to shift towards electricity: 2021 is on course to be the sixth year in a row that investment in the power sector exceeds that in traditional oil and gas supply, according to the World Energy Investment 2021 report.
Global power sector investment is set to increase by around 5% in 2021 to more than $820 billion, its highest ever level, after staying flat in 2020. Renewables are dominating investment in new power generation capacity and are expected to account for 70% of the total this year. That money now goes further than ever in financing clean electricity, with a dollar spent on solar PV deployment today resulting in four times more electricity than 10 years ago, thanks to greatly improved technology and falling costs.
“The rebound in energy investment is a welcome sign, and I’m encouraged to see more of it flowing towards renewables,” says Fatih Birol, executive director of IEA. “But 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. Based on our new Net Zero Roadmap, clean energy investment will need to triple by 2030.”
While renewables dominate new power investment, and approvals for coal-fired plants are some 80% below where they were five years ago, coal is 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.
There are signs in the latest data that spending by some global oil and gas companies is starting to diversify. 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 influence of recovery packages and new climate policy measures comes through in expectations of rising expenditure this year on renewable power, electricity grids, energy efficiency – notably in the buildings sector in Europe – and emerging technologies such as carbon capture, storage and low-carbon hydrogen. The U.S. may provide further momentum if the infrastructure plan proposed by the administration of President Joe Biden is enacted.
The 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. Clean energy investment would need to triple in the 2020s to put the world on track to reach net-zero emissions by 2050, thereby keeping the door open for a 1.5 °C stabilization of the rise in global temperatures.