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Finance for energy transition passes $1 trillion

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The latest analysis shows that capital flows towards transition are accelerating as investment in low carbon energy technologies hit $1.1 trillion in 2022.

  • Investment in the low carbon energy transition leaped 31% in 2022.
  • Capital flows towards transition are now equivalent to investment in fossil fuels.
  • Given the growth in investment, could this be a tipping point towards net zero?

According to the Energy Transition Investment Trends report, capital flows to the energy transition reached $1.1 trillion in 2022, defying supply chain disruptions and macroeconomic headwinds. This is not only a new record and a massive acceleration from the previous year, but BloombergNEF says that investment is now on a par with fossil fuels.

While the energy crisis may have seen politicians searching the world for alternative sources to Russian oil and gas, it also saw swift action to finance low carbon alternatives. Such policy action drove faster deployment of clean energy technologies.

While renewables was the focus, electrified transport is catching up

Renewable energy, which includes wind, solar, biofuels and other renewables, remained the largest sector in investment terms, achieving a new record of $495 billion committed in 2022, up 17% from the year prior.

Electrified transport however, which includes spending on electric vehicles and associated infrastructure, came close to overtaking renewables, with $466 billion spent in 2022 – an impressive 54% increase year-on-year.

Almost every sector covered in the report achieved a new record level of investment in 2022, including renewable energy, energy storage, electrified transport, electrified heat, carbon capture and storage (CCS), hydrogen and sustainable materials. Only nuclear power investment did not set a record, staying broadly flat.

Despite media and political hype, hydrogen investment still nascent

Hydrogen is the sector that received the least financial commitment at just $1.1 billion in 2022 (0.1% of the total), despite strong interest from the private sector and growing policy support. Hydrogen is, however, the fastest-growing sector with investment more than tripling over the year before.

China still leading the pack for transition investment

BNEF’s data show that China was by far the leading country for attracting energy transition investment, accounting for $546 billion or nearly half of the global total.

The US was a distant second at $141 billion, while the EU would have been second if treated as a single bloc, at $180 billion. Germany retained its third place, while the UK dropped one place to fifth as France climbed to fourth. It will be interesting to see the impact of the US Inflation Reduction Act on 2023 spend.

Transition investment matches fossil fuels for the first time; ramp-up needed for net zero

Within the report BNEF also makes a top-down estimate of global fossil fuel investments, including upstream, midstream, downstream and unabated fossil power generation. This figure, arrived at independently for the purpose of comparison, is estimated at $1.1 trillion in 2022 – the same figure as the energy transition investment total.

This marks the first time that global energy transition investment has matched fossil fuel investment, and comes despite fossil investment growth triggered by last year’s energy crisis.

“Our findings put to bed any debate about how the energy crisis will impact clean energy deployment,” said Albert Cheung, Head of Global Analysis at BloombergNEF. “Rather than slowing down, energy transition investment has surged to a new record as countries and businesses continue to execute on transition plans. Investment in clean energy technologies is on the brink of overtaking fossil fuel investments, and won’t look back. These investments will drive short-term job creation and help to address medium-term energy security objectives. But much more investment is needed to get on track for net zero in the long term.”

Investment must triple to hit net zero goals

Despite 2022’s impressive results, global investment in lower-carbon technologies remains woefully short of what is needed to confront climate change.

For the world to get on a 2050 “net-zero” CO2 emissions trajectory, such investment must immediately triple, BNEF estimates. Including the additional $274 billion invested in the power grid, energy transition investment hit $1.38 trillion in 2022. By comparison, the world must invest an annual average of $4.55 trillion for the remainder of this decade in order to get on track under BNEF’s Net Zero Scenario.

Climate-tech corporate finance down 29%

The report also finds that climate-tech corporate finance totalled $119 billion in 2022. This category of investment, not included in the overall $1.1 trillion figure, describes new equity financing raised by companies in the climate-tech space, either from public markets or private investors.

The figure represents a 29% decline from the year before, driven entirely by a fall in public share offerings during a challenging year in global equity markets. Despite the turmoil, venture capital and private equity financings held up well, growing 3% on the year.

Supply chain and manufacturing investment rises to $79 billion, dominated by China

The report also says that clean energy factory investment (investments in manufacturing facilities for clean energy technologies) grew to $78.7 billion in 2022, up from $52.6 billion in 2021. Manufacturing facilities for batteries and related components formed the largest share of this at $45.4 billion, while solar factories attracted $23.9 billion.

China accounted for 91% of manufacturing investments in 2022, in spite of efforts from other countries to capture more of the global clean energy opportunity. Between 2023-26 BNEF estimates that factory investment for clean energy technologies only needs to average $35 billion per year, to get on track for its Net Zero Scenario.

“Manufacturing capacity for clean energy technologies is unlikely to be the major bottleneck to achieving net zero,” said Antoine Vagneur-Jones, BNEF’s Head of Trade and Supply Chains research. “However, from a supply chain diversification point of view, the picture has not changed much. China is investing by far the most in building out its clean energy supply chain, and it remains to be seen if other regions can capture significant market share.”

2023 is expected to look slightly different, with a growing focus (especially in the US) about homeshoring its manufacturing. In fact, the US in particular has seen a wave of announcements of new or expanded factories for clean energy technologies in recent months. These however these are not yet represented in BNEF’s figures, which only account for successfully commissioned factory projects.

The Energy Transition Investment Trends report is BNEF’s annual accounting of how much funding businesses, financial institutions, governments and end-users are committing to the low-carbon energy transition.

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