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Energy Transition Investment Trends 2022

by | Oct 10, 2022 | Green Energy, Green Investments

Introduction

The global energy industry entered 2022, seeing both the best and worst possible transition outcomes. Despite a clear announcement from the UN that we must limit the Earth’s warming to 1.5oC, it took the COVID-19 pandemic to bring down the world’s carbon emissions temporarily. We now have only a narrow window of opportunity to address the climate crisis and meet the Paris Agreement targets. The energy transition investment trends in 2022 give the world hope of meeting the Paris Agreement targets.

The pandemic also opened our eyes to the value of clean energy sources. Clean energy sources proved to be more resilient in overcoming the supply chain and workforce challenges brought on by COVID-19.

The beginning of 2022 witnessed a stronger commitment toward the energy transition than ever before. Today, approximately 21% of the world’s 2,000 largest companies have committed to net-zero targets. However, hopes that the world is on a clear path to decarbonization are short-lived. Experts predict that the global demand for coal will reach record highs this year.

The consequences of continuing to release carbon emissions are the starkest they’ve ever been. Last year saw the hottest ocean temperatures in history. Global warming and melting permafrost has put Arctic pipelines at risk.

Clear signs of climate change, such as wildfires and intense storms and floods, have promoted actions by companies to reduce carbon emissions.

In 2009, 23 wealthy countries, including Japan, Germany, and the United States, promised to pay developing countries 100 billion dollars every year as climate mitigation funding. Around a dozen years later, developing nations are still waiting for that pledged amount. But, the good news is that climate-related finance continues to be on an upward trend, increasing every year.

In September last year, China agreed to stop funding foreign coal projects. In December of the same year, the US ordered its agencies to curb overseas engagement in fossil fuel schemes.

Carbon capture and storage, clean hydrogen, and offshore wind are low-carbon technologies on the cusp of mass commercialization. Companies in the oil and gas industry have now started exploring these clean technology niches.

As an example, this year, ExxonMobil announced that it formed a memorandum of understanding with Green Investment Group to develop a carbon capture and storage and hydrogen project in Southampton, UK.

Trends in 2022

According to a report released by BloombergNEF titled ‘Energy Transition Investment Trends 2022’, investment rose across every clean energy sector, including electric vehicles, renewable energy, electrified heating, hydrogen, and sustainable materials.

However, despite an increase in clean energy projects, the carbon capture and storage sector recorded a decrease in investments.

The money spent to deploy low-carbon technologies hit 755 billion dollars, setting a new record. The largest sectors were renewable energy and electrified transport, whose investments stood at 366 billion dollars and 273 billion dollars, respectively.

Clean energy, nuclear, renewables, energy storage, and electrified transport and heat accounted for the majority of investments – 731 billion dollars. Sustainable materials, carbon capture and storage, and hydrogen made up the rest, totaling 24 billion dollars.

The Asia Pacific region recorded the highest growth in energy transition investments at 38%. The region was also the largest for energy transition investments at 368 billion dollars.

Energy transition investments in Africa, the Middle East, and Europe grew by 16%, reaching 236 billion dollars.

Source

China was the leading country with investments worth 266 billion dollars- a growth of 60% from the previous years.

Clean energy investments in Japan fell slightly. However, India and Korea entered the list of the top 10 countries with the highest energy transition investments.

European countries also featured in the top 10. The UK, Spain, Germany, and France all exceeded 10 billion dollars in low-carbon technology spending. Norway and Netherlands, the countries that featured in the top 10 the previous years, did not make it to the list this year.

Energy transition investments need to average 2,063 billion dollars between 2022 and 2025 for the world to get on track to achieving net-zero emissions. These investments need to double to 4,189 billion dollars between 2026 and 2030.

The clean energy and electric vehicle stocks across the world recorded significant growth and increase. However, oil and gas firms outperformed the clean energy and EV sectors.

While the solar industry is significantly accelerating the global energy transition, the industry has an added complication of polysilicon shortages. Polysilicon is essential for building solar panels. The shortages have led many solar projects to be abandoned or postponed. This drag on renewable energy projects could prolong the demand for fossil fuels, although the effect will be minimal. It could also mean that oil and gas players trying to enter the renewable energy industry might find the cost of entry to be quite high and the timeframes for projects longer.

Conclusion

The energy transition investment trends for 2022 show that the world could be on track to achieving net-zero emissions by the target year.

The energy transition from fossil fuels to low-carbon technology will require massive and sustained levels of investment in clean hydrogen, increased electrification, renewable energy, and carbon capture and storage.

Regions dependent on fossil fuels will pose significant challenges for the global energy transition. Therefore, energy transition projects need to consider the impact on vulnerable communities. They need to create opportunities to accelerate the transition in a way that is just and centered around people and resilience.

To achieve net-zero emissions on a global scale, the world needs to invest 125 trillion dollars in climate investments by 2050.

The renewable energy industry accounted for nearly 50% of total investments in 2021.

Investments in nuclear power stood at 32 billion dollars. Investments in bioplastics and recycling projects recorded more than double the investments of the previous years.

Low-carbon technology will become a key asset for oil and gas.

 

Author

  • Sigma Earth

    The author has done a master's in Environmental science and is currently working as chief Environmental Advisor with New Delhi State Government.

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