Clean energy investment is – finally – starting to pick up and is expected to exceed USD 1.4 trillion in 2022, accounting for almost three-quarters of the growth in overall energy investment. The annual average growth rate in clean energy investment in the five years after the signature of the Paris Agreement in 2015 was just over 2%. Since 2020 the rate has risen to 12%, well short of what is required to hit international climate goals, but nonetheless an important step in the right direction. The highest clean energy investment levels in 2021 were in China (USD 380 billion), followed by the European Union (USD 260 billion) and the United States (USD 215 billion).

The gains have been underpinned by the increasing cost-competitiveness of many clean energy technologies and by policy and fiscal measures enacted to support transitions, often as part of efforts to ensure sustainable post-pandemic recoveries. The IEA Sustainable Recovery Tracker estimated in early 2022 that governments worldwide earmarked USD 710 billion for long-term clean energy and sustainable recovery measures.

Renewable power is at the heart of the positive trend; even though costs have risen in recent months, clean technologies such as wind and solar PV remain the cheapest option for new power generation in many countries, even before accounting for the exceptionally high prices seen in 2022 for coal and gas. Renewables, grids and storage now account for more than 80% of total power sector investment.

Solar PV makes up almost half of new investment in renewable power, with spending divided equally between utility-scale projects and distributed solar PV systems. The focus for wind power is shifting offshore: whereas 2020 was a record year for onshore deployment, 2021 was a record year for offshore, with more than 20 GW commissioned and around USD 40 billion of expenditure.

Investment in improved efficiency is another major growth area, driven by higher fuel prices and government incentives. A 16% increase in buildings efficiency investment in 2021 led the way, by far the largest annual increase since we started tracking these investment flows. Policy makers are attempting to move the global annual rate of building retrofits above the 1% mark, where it has been stuck for many years, and many countries, notably Japan, China and some in Europe, are putting increasing emphasis on high energy performance standards for new construction.

The upward trend in efficiency spending is expected to be maintained in 2022. The spike in fuel prices is prompting increasing interest in technologies like electric heat pumps (sales of which grew by 15% in 2021). However, efficiency investment faces headwinds, with higher borrowing costs, flat household incomes, and lower consumer and business confidence. As ever, much hinges on continued government support to shape consumer and corporate demand.

Electrification of mobility is a key contributor to rising clean end-use spending by consumers. Sales of EVs more than doubled in 2021 on the previous year and are continuing to rise strongly in 2022. Back in 2012 just 120 000 EVs were sold worldwide. In 2021 more than that number were sold each week. One uncertainty is whether automakers can keep up with orders, given supply chain issues (see section on critical minerals) and the global semiconductor shortage.

Electrification is not only about cars; sales of electric two- and three-wheelers have been bouyant, and investment in the electrification of buses and commercial vehicles is also strong. Most electric buses are still deployed in China, but investment elsewhere is growing: in early 2022 India ordered more than 5 000 electric buses for five major cities, awarded at half the price reached in previous tenders.

There are signs of life among important new and emerging technologies, where absolute investment remains relatively small but growth rates are high.

• Investment in battery energy storage is hitting new highs and is expected to more than double to reach almost USD 20 billion in 2022. This is led by grid-scale deployment, which represented more than 70% of total spending in 2021. The pipeline of projects is immense, with China targeting around 30 GW of non-hydro energy storage capacity by 2025 and the United States having more than 20 GW of grid-scale projects either planned or under construction.
• The momentum behind low-emissions hydrogen has been reinforced by Russia’s invasion of Ukraine, which has bolstered policy support, especially in Europe. Clean hydrogen-focused companies are raising more money than ever before, and the value of a portfolio of leading firms in this space has quadrupled since the end of 2019. Annual investment in low-carbon hydrogen stands at around USD 0.5 billion; to supply the extra 15 Mt of hydrogen targeted in the REPowerEU plan, we estimate that cumulative capital investment totalling around USD 600 billion globally would be needed up to 2030, with 60% of this for infrastructure outside the European Union.
• Plans for around 130 commercial-scale CO₂ capture projects in 20 countries were announced in 2021. They aim to capture CO₂ from a range of applications, including hydrogen and biofuel production, which combined account for almost half of newly announced projects. Investment has also risen, to around USD 1.8 billion in 2021, as six CCUS projects took FID last year. Significant amounts of private capital are starting to flow to young companies with costly technologies to remove CO₂ from the air and store or use it.

The momentum behind early-stage emerging technologies is being maintained by rising public funding support for energy innovation. Start-ups in the United States and Europe have raised record funds, in particular for promising energy storage, hydrogen and renewable energy technologies.

While global clean energy investment is now well above where it was at the time the Paris Agreement was signed, the rise has been concentrated in advanced economies and China. Clean energy spending in emerging and developing economies (excluding China) remains stuck at 2015 levels. These funds go further than they used to, as technology costs are significantly lower than they were, and there are some bright spots – utility-scale renewables in India, wind and distributed PV in Brazil, among others. But overall, the relative weakness of clean energy investment across much of the developing world is one of the most worrying trends revealed by our analysis.

Investment in many emerging and developing economies is more dependent on public sources; state-owned enterprises account for around half of energy investment in these economies. But public funds are typically scarce, many state-owned utilities are highly indebted and a worsening global economic outlook reduces governments’ ability to fund energy projects. Of the stimulus spending mobilised to support a sustainable recovery, more than 90% is in advanced economies. High costs of capital and rising borrowing costs threaten to undercut the economic attractiveness of capital-intensive clean technologies: an increase of 2 percentage points in the cost of capital for solar PV and wind can lead to a 20% increase in overall levelised costs.

Most of the positive trends in clean energy investment leave developing economies behind. Virtually all of the global increase in spending on renewables, grids and storage since 2020 has taken place elsewhere. More than 80% of EV sales are concentrated in China and Europe; more than 90% of global spending on public EV recharging infrastructure is in China, Europe and the United States.

High prices are a blunt instrument to foster more sustainable choices, especially in poorer countries, in the absence of supportive policies. There is a real risk that today’s energy crisis will push millions back towards energy poverty: nearly 90 million people in Asia and Africa who had previously gained access to electricity, can no longer afford to pay for their basic energy needs.

Much more needs to be done to bridge the gap between emerging and developing economies’ one-fifth share of global clean energy investment, and their two-thirds share of the global population. Additional financial and technical support, including concessional capital, private sector capital, and inflows from international carbon markets, will all be crucial. If clean energy investment does not rapidly pick up in emerging and developing economies, the world will face a major dividing line in efforts to address climate change and reach other sustainable development goals.  

For the first time, this year’s WEI includes a detailed review of investment trends for the minerals and metals that are vital to energy transitions. The price increases for these critical minerals since the start of 2021 – notably for lithium, but also for cobalt, nickel, copper and aluminium – have been greater than at any point in the 2010s, due to a combination of rising demand, disrupted supply chains and concerns around tightening supply.

This surge in prices has been a major factor in reversing, at least temporarily, the trajectory of declining costs for some clean energy technologies. The share of cathode material costs (including lithium, nickel, cobalt and manganese) in the costs of an EV battery has risen from 5% in the mid-2010s to more than 20% today, at a time when some 300 new gigafactories are in planning and construction. 

Market tensions are exacerbated by questions over Russian supply. Russia is the world’s leading producer of palladium (43%), used for catalytic converters in cars. It is the largest producer of battery-grade Class 1 nickel, with 20% of the world’s mined supply. Russia is the world’s second largest producer of aluminium (6%), and the second and fourth largest producer of cobalt and graphite respectively.

In contrast to fossil fuels, elevated critical mineral prices are accompanied by expectations of rapid demand growth, and this helps to underpin expansive investment plans. The combined operating profits of 18 major mining companies with a strong presence in developing energy transition minerals more than doubled in 2021. This helped to underpin a 20% increase in overall investment in non-ferrous metal production in 2021, with the pace of increase even faster among companies focusing on specific minerals. Lithium-focused companies increased their spending by 50% to record highs. Investment growth is expected to remain strong in 2022.

Exploration spending recorded a 30% uptick in 2021, with the United States, Canada and Latin America driving the bulk of the growth. This increase should help to diversify future sources of supply, although it takes time for exploration spending to translate into output growth.

Many governments are promoting investment activities with the aim of ensuring secure mineral supplies for their domestic clean energy supply chains, while also supporting innovation and recycling. There is more government funding going to critical minerals within energy research and development activities. Venture capital money for EVs is increasingly going to battery designs and recycling approaches that seek to tackle critical mineral issues, with a lower share going to vehicle makers than in the past

There are also signs that the pool of investors in the sector is widening, as vehicle and battery manufacturers (including Volkswagen, Tesla, CATL and LG Energy Solution) get involved directly in the mining and processing of critical minerals in order to safeguard their production pipelines

Investment to bring more clean and affordable energy into the system is rising, but not yet quickly enough to forge a path out of today’s crisis or to bring emissions down to net zero by mid-century – a critical but formidable challenge that the world needs to overcome if it is to have any chance of limiting global warming to 1.5°C. Without a massive surge in spending on efficiency, electrification and low-carbon supply, rising global demand for energy services will simply not be met in a sustainable way.

There are signs – notably in Europe’s REPowerEU plan – that the crisis is acting as an accelerant for energy transitions. But even in a world of high and volatile fossil fuel prices, it cannot be taken for granted that today’s cost advantages for clean, efficient equipment will translate into more sustainable investment choices. There is a host of non-market barriers that policy makers need to tackle, such as permitting requirements and preferential arrangements for incumbent producers and technologies, as part of urgent efforts to expand and strengthen clean energy supply chains. Higher and more diversified investment in critical minerals is a vital part of the solution, as is greater support for innovation and emerging clean technologies.

Power sector investment is the closest to a sustainable trajectory. If today’s annual expenditure of USD 900 billion continues to grow at the same rate seen over the last three years for the remainder of this decade, that would be consistent in aggregate with the USD 1 200 billion annual average to 2030 that we estimate is required to meet existing climate pledges. But these pledges are not yet consistent with reaching net zero emissions by 2050, a pathway that would require annual spending this decade of more than USD 2 trillion.

The NZE Scenario also requires the rapid uptake of electrification of transport, heating, cooling and industrial production, and a massive effort to speed up retrofits and spending on new energy-efficient buildings. By 2030 annual spending under this scenario on energy efficiency, electrification and renewables for end use is almost four times higher than today.

The shortfalls are particularly striking in many emerging and developing economies. Power sector investment in this grouping would need to grow at an annual rate of more than 25% for the rest of this decade to get on track for a net zero by 2050 pathway. This compares with just 3% annual average growth seen over the last few years. Accelerating investment across all aspects of energy transitions in developing economies needs to be a first-order priority, including for international financial institutions, their donors, multilateral development banks and many other actors.

Where does this crisis leave fossil fuel producers? In the short term it leaves most of them considerably wealthier. High prices are generating an unprecented windfall, especially for oil and gas suppliers. This is a once-in-a-generation opportunity for producer economies to fund diversification activities and for the major oil and gas companies to deliver more diversified spending.

Some of this revenue will be ploughed back into supply, but the case for investment in fossil fuels – and the risks associated with this spending – rests on the strength of global efforts to curb demand. Our estimates for 2022 suggest that today’s aggregate fossil fuel investment is broadly aligned with the near-term needs of a scenario in which countries hit their climate pledges, but this depends crucially on additional efforts from governments to curb fuel demand in line with these pledges. Without these additional efforts, today’s level of capital spending would further reduce the ability of markets to weather volatility.

If countries move beyond their existing pledges and get on track for a 1.5°C cap on global warming, then the case for committing capital to new fossil fuel projects becomes very weak,. The landmark IEA Roadmap to Net Zero Emissions by 2050 published in May 2021, indicated that declining fossil fuel demand in this scenario, arising from a massive surge in investment in renewables, energy efficiency and other clean energy technologies, could be met through continued investment in existing production assets, but without any need for new oil or gas fields, and no new coal mines or mine extensions.

In the short term the scramble to diversify supplies away from Russia and to meet associated supply shortages implies some near-term investment upside for other producers, as well as some new LNG infrastructure, even in a world working towards net zero emissions by 2050. However, no one should imagine that Russia’s invasion of Ukraine can justify a wave of new large-scale fossil fuel infrastructure in a world that wants to limit global warming to 1.5 C. 

Ultimately, it is for governments to take the lead and show the way. There are many parts of society that need to work together to deliver a new global energy economy that is much safer and much more sustainable than the one we have today–. But governments have unique capabilities to act and to guide the actions of others.

They can lead the way by providing the strategic vision, the spur to innovation, the incentives for consumers, the policy signals and the public finance that catalyses private investment, and the support for communities where livelihoods are affected by rapid change. They also have the responsibility to avoid unintended consequences for the security and affordability of supply.