The African Energy Chamber (AEC), is proud to announce the release of the AEC Q1 2022 Outlook, "The State of African Energy" – a comprehensive report analyzing the trends shaping both the global and African oil and gas market in 2022 Contact online >>
The African Energy Chamber (AEC), is proud to announce the release of the AEC Q1 2022 Outlook, "The State of African Energy" – a comprehensive report analyzing the trends shaping both the global and African oil and gas market in 2022
Global energy investment is set to exceed USD3trillion for the first time in 2024, with USD2trillion going to clean energy technologies and infrastructure. Investment in clean energy has accelerated since 2020, and spending on renewable power, grids and storage is now higher than total spending on oil, gas, and coal.
As the era of cheap borrowing comes to an end, certain kinds of investment are being held back by higher financing costs. However, the impact on project economics has been partially offset by easing supply chain pressures and falling prices. Solar panel costs have decreased by 30% over the last two years, and prices for minerals and metals crucial for energy transitions have also sharply dropped, especially the metals required for batteries.
Yet much more needs to be done. In most cases, this growth comes from a very low base and many of the least-developed economies are being left behind (several face acute problems servicing high levels of debt). In 2024, the share of global clean energy investment in EMDE outside China is expected to remain around 15% of the total. Both in terms of volume and share, this is far below the amounts that are required to ensure full access to modern energy and to meet rising energy demand in a sustainable way.
Power sector investment in solar photovoltaic (PV) technology is projected to exceed USD500billion in 2024, surpassing all other generation sources combined. Though growth may moderate slightly in 2024 due to falling PV module prices, solar remains central to the power sector''s transformation. In 2023, each dollar invested in wind and solar PV yielded 2.5 times more energy output than a dollar spent on the same technologies a decade prior.
In 2015, the ratio of clean power to unabated fossil fuel power investments was roughly 2:1. In 2024, this ratio is set to reach 10:1. The rise in solar and wind deployment has driven wholesale prices down in some countries, occasionally below zero, particularly during peak periods of wind and solar generation. This lowers the potential for spot market earnings for producers and highlights the need for complementary investments in flexibility and storage capacity.
Investments in nuclear power are expected to pick up in 2024, with its share (9%) in clean power investments rising after two consecutive years of decline. Total investment in nuclear is projected to reach USD80billion in 2024, nearly double the 2018 level, which was the lowest point in a decade.
Grids have become a bottleneck for energy transitions, but investment is rising. After stagnating around USD300billion per year since 2015, spending is expected to hit USD400billion in 2024, driven by new policies and funding in Europe, the United States, China, and parts of Latin America. Advanced economies and China account for 80% of global grid spending. Investment in Latin America has almost doubled since 2021, notably in Colombia, Chile, and Brazil, where spending doubled in 2023 alone. However, investment remains worryingly low elsewhere.
Investments in battery storage are ramping up and are set to exceed USD50billion in 2024. But spending is highly concentrated. In 2023, for every dollar invested in battery storage in advanced economies and China, only one cent was invested in other EMDE.
Investment in energy efficiency and electrification in buildings and industry has been quite resilient, despite the economic headwinds. But most of the dynamism in the end-use sectors is coming from transport, where investment is set to reach new highs in 2024 (+8% compared to 2023), driven by strong electric vehicle (EV) sales.
In the United States, investment in clean energy increases to an estimated more than USD300billion in 2024, 1.6 times the 2020 level and well ahead of the amount invested in fossil fuels. The European Union spends USD370billion on clean energy today, while China is set to spend almost USD680billion in 2024, supported by its large domestic market and rapid growth in the so-called "new three" industries: solar cells, lithium battery production and EV manufacturing.
Upstream oil and gas investment is expected to increase by 7% in 2024 to reach USD570billion, following a 9% rise in 2023. This is being led by Middle East and Asian NOCs, which have increased their investments in oil and gas by over 50% since 2017, and which account for almost the entire rise in spending for 2023-2024.
Lower cost inflation means that the headline rise in spending results in an even larger rise in activity, by approximately 25% compared with 2022. Existing fields account for around 40% total oil and gas upstream investment, while another 33% goes to new fields and exploration. The remainder goes to tight oil and shale gas.
Most of the huge influx of cashflows to the oil and gas industry in 2022-2023 was either returned to shareholders, used to buy back shares or to pay down debt; these uses exceeded capital expenditure again in 2023. A surge in profits has also spurred a wave of mergers and acquisitions (M&A), especially among US shale companies, which represented 75% of M&A activity in 2023. Clean energy spending by oil and gas companies grew to around USD30billion in 2023 (of which just USD1.5billion was by NOCs), but this represents less than 4% of global capital investment on clean energy.
A significant wave of new investment is expected in LNG in the coming years as new liquefaction plants are built, primarily in the United States and Qatar. The concentration of projects looking to start operation in the second half of this decade could increase competition and raise costs for the limited number of specialised contractors in this area. For the moment, the prospect of ample gas supplies has not triggered a major reaction further down the value chain. The amount of new gas-fired power capacity being approved and coming online remains stable at around 50-60GW per year.
Investment in coal has been rising steadily in recent years, and more than 50 GW of unabated coal-fired power generation was approved in 2023, the most since 2015, and almost all of this was in China.
This year''s World Energy Investment report contains new analysis on sources of investments and sources of finance, making a clear distinction between those making investment decisions (governments, often via state-owned enterprises (SOEs), private firms and households) and the institutions providing the capital (the public sector, commercial lenders, and development finance institutions) to finance these investments.
Three quarters of global energy investments today are funded from private and commercial sources, and around 25% from public finance, and just 1% from national and international development finance institutions (DFIs).
The NZE Scenario sees a major rebalancing of investments in fuel supply, away from fossil fuels and towards low-emissions fuels, such as bioenergy and low-emissions hydrogen, as well as CCUS. Achieving net zero emissions globally by 2050 would mean annual investment in oil, gas, and coal falls by more than half, from just over USD1trillion in 2024 to below USD450billion per year in 2030, while spending on low-emissions fuels increases tenfold, to about USD200billion in 2030 from just under USD20billion today.
The lack of local-currency lending pushes up borrowing costs and in many cases is the primary reason behind the much higher cost of capital in EMDE compared to advanced economies. High hedging costs often make this financing unaffordable to many of the least-developed countries and raises questions of debt sustainability. More attention is needed from DFIs to focus interventions on project de-risking that can mobilise much higher multiples of private capital.
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