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Global spending on solar energy exceeds spending on oil production

 The International Energy Agency publishes its latest annual investment report. Here are the different items of expenditure in this article.

Allocated investments in clean energy

Allocated investments in clean energy

The International Energy Agency has just published its annual report on global energy investments, showing the total amounts of that money. In 2022, investments worldwide will reach approximately $2.8 trillion, of which approximately $1.7 trillion will be allocated to clean energy.

This is the largest one-year investment in clean energy ever, and the spending is interesting. And I'm going to tell you some good news, some bad news, and a few interesting stories.

Fossil fuels are in decline

Let's start with what I consider to be the good news, which is allocating a lot of money to clean energy, including renewables, nuclear power, and technologies that help reduce emissions, such as electric cars and heat pumps. Not only is the money allocated to these technologies a lot, but more than the money allocated to fossil fuels as well. In 2022, for every $1 spent on fossil fuels, there will be $1.7 spent on clean energy. Just five years ago, the two amounts were exactly the same.

The growing dominance of clean energy is particularly evident in the field of solar energy. In 2023, for the first time, investments in solar energy are expected to exceed investments in oil production. It's a huge difference from the situation a decade ago when spending on oil was nearly six times greater than spending on solar energy.

And since we're talking about oil and gas, I think it's appropriate to make an interesting point, which is that spending on clean energy does not represent a large percentage of spending by fossil fuel companies, even though a lot of money is allocated to clean energy.

The bad news - albeit less influential - in 2021 and 2022 is the percentage of oil and gas companies spending on clean energy. Spending on oil infrastructure has fallen, allowing solar spending to catch up, but companies have compensated by buying dividends, buybacks, and paying down debt, rather than investing more in low-emissions technologies.

Any investment or interest in renewable energies and innovations that can reduce emissions is great, and I believe that oil and gas companies can play an important role in supporting new technologies, especially those in which they have expertise, such as geothermal technologies. But I also think that spending needs to be put in context, as oil and gas companies allocate less money to renewables than their advertising campaigns would suggest.

Accept the challenge

In the context of clean energy, the majority of spending was allocated to renewable energies, such as wind and solar energy projects, electric grid development projects, and efforts to increase energy efficiency.

However, the small sectors are proliferating, especially if we look at the forecasts for this year. I am very excited about the rapid increase in spending on electric vehicles, from $29 billion in 2020 to a projected value of $129 billion in 2023. Between 2022 and 2023 spending on energy storage batteries is expected to double.

These new increases can lead to dramatic changes, and because of them, we have seen major shifts in the battery industry. It seems difficult to go a few days, at most, without an announcement of the opening of a new battery plant, and the most recent of these announcements includes the opening of another multi-billion-dollar plant in the state of Georgia.

If all these plans are realized on the ground, the storage capacity for the production of lithium-ion batteries in 2030 will reach 7 terawatt-hours. This is enough for more than 100 million electric cars annually. Although most of this production will be in China, the United States and Europe are beginning to make real progress in stripping China of its hegemony in everything related to electric cars.

Towards the future

What we have said so far points to huge amounts of money, but is it enough?

To keep global warming below 1.5°C above pre-industrial levels, and avoid the worst impacts of climate change, we must reach net zero emissions by around 2050. The International Energy Agency estimates that in order to meet this objective, annual investments will need to increase to $4.5 trillion in 2030, almost three times current spending.

In fact, some technologies have reached an advanced stage. It is enough that spending on solar energy continues to grow at the same pace for this sector to achieve the 2050 goal. But spending must be increased significantly in other sectors, in particular, technologies related to energy storage and transmission lines, which will help to balance the electric grid with the entry of More solar projects and other intermittent renewable energy sources coming into operation. In addition, there is a great imbalance in geographical distribution, as poor countries need great support to help them build their electrical networks and establish new technologies.

Overall, investments are on track, and I'm excited about what we'll see in next year's report. We still have a lot of work to do and a long way to go.