Global energy investment 2021 – new IEA outlook

Global energy investment is set to rebound by around 10% in 2021, reversing most of the drop caused by the pandemic

In 2021, annual global energy investment is set to rise to USD 1.9 trillion, rebounding nearly 10% from 2020 and bringing the total volume of investment back towards pre-crisis levels.

 

Electricity, led by buoyant spending on renewable power, continues to take the largest share of overall supply investment

The anticipated upswing in investments in 2021 is a mixture of a cyclical response to recovery and a structural shift in capital flows towards cleaner technologies. But despite an urgent need to shift to a more sustainable energy pathway, global carbon dioxide (CO2) emissions are again on the rise, following the largest-ever annual decline in 2020.

 

Policies remain a crucial driver for many energy investments, with the impact of recovery plans becoming visible in some countries

In economies where governments have more fiscal space and are able to borrow at low rates, recovery strategies offer a major opportunity to boost investment in infrastructure, efficiency and clean energy technologies.

 

Clean energy investment is on a moderate upswing, but remains far short of what will be required to avoid severe impacts from climate change

The USD 750 billion that is expected to be spent on clean energy technologies and efficiency worldwide in 2021 remains far below what is required in climate-driven scenarios. Clean energy investment would need to double in the 2020s to maintain temperatures well below a 2°C rise and more than triple in order to keep the door open for a 1.5°C stabilization. Moving to a climate-aligned energy pathway hinges on a broad range of government actions, including attention to the financial architecture that can accelerate direct investments in market-ready solutions and promote innovation in early-stage technologies.

The gap between today’s investment trends and a sustainable pathway is larger in emerging market and developing economies

Clear policy signals from government would not only reduce uncertainties associated with clean energy but also avoid potential costs from investing in assets that risk being underutilized or stranded. Mismatches in the speed of adjustment can create risks, for example, if a slow pace of grid investment leads to bottlenecks for wind and solar PV, or if oil and gas suppliers transition away from hydrocarbons faster than do their consumers. As financial regulators work to align capital flows with climate goals, slower progress in the real economy can lead investors to over-value some sectors while penalizing others, creating a volatile ride along the way.

 

An uptick in investment decisions for new coal-fired power plants underscores that coal is down, but not out

The rising share of renewables in new power generation investment has been accompanied by a sharp drop in approvals for new coal-fired power plants, which are some 80% below where they were five years ago. However, there was a slight increase in go-ahead for new coal-fired projects in 2020. This was largely due to China, where the government lowered restrictions on building new plants, giving a green light for construction in more provinces. Cambodia, Indonesia and Pakistan were other countries where coal-fired final investment decisions (FIDs) picked up in 2020. Those three countries together approved almost 5 gigawatts (GW) of new coal capacity in total. In India, the amount approved dropped below 1 GW, its lowest level in a decade.

From a low base, investments by the oil and gas industry in clean energy technologies are starting to pick up

Oil and gas companies are coming under increasing pressure to adapt their investment strategies to the needs of clean energy transitions. This takes different forms, including commitments to reduce emissions resulting from oil and gas supply or to invest in new areas such as clean electricity or sustainable fuels.

 

Support for innovation is a key pillar of net-zero plans, but 2020 saw diverging trends between government and corporate spending on energy research and development

Public spending on energy R&D continued to rise in 2020, with the share of low-carbon technologies in the total rising to 80%. However, energy R&D spending by the private sector dropped by around 2% as the pandemic caused cuts to corporate budgets. Governments have a key role to play in ensuring that the world’s capacity to bring new technologies to market is not disrupted by the pandemic.

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