Global investment in clean energy technologies – from renewables and electric vehicles (EVs) to nuclear power plants and heat pumps – is “significantly” outpacing spending on fossil fuels, with the energy crisis having accelerated momentum around the global green energy transition, according to the latest update from the International Energy Agency (IEA).

The influential agency today predicted that investment in the world’s energy system is set to reach $2.8tr in 2023, of which more than $1.7tr would go towards clean energy technologies, including renewables, EVs, nuclear, power grids, energy storage, low carbon fuels, energy efficiency projects, and heat pumps.

The remainder – just over $1tr – is still set to be invested in coal, oil, and gas projects, but the IEA stressed that clean energy technologies were moving “faster than many people realise” and that the momentum had shifted significantly in favour of clean tech in the wake of the global energy crisis.

A 24 per cent increase in clean energy investment is now expected between 2021 and 2023, driven largely by spending on renewables and EVs, compared to a 15 per cent rise in fossil fuel investment, the IEA’s latest annual world energy investment report today reveals.

The IEA highlighted solar in particular as the “shining example” of the scale and scope of the clean energy transition, with investment in the technology – projected to be around $380bn – set to overtake the amount of money being channelled into oil production for the first time this year.

Led by solar, low carbon electricity technologies are expected to account for almost 90 per cent of global investment in new power generation, according to the report.

Similarly, battery storage investment more than doubled worldwide last year, and is set to double again in 2023, while investment in critical mineral mining grew by 30 per cent last year in response to growing demand from clean technologies, it said.

In addition, the report reveals that global heat pump sales enjoyed double-digit growth for the second year running last year, while EV sales reached around $400bn after growing 55 per cent in 2022.

“Clean energy is moving fast – faster than many people realise,” said IEA executive director Fatih Birol. “This is clear in the investment trends, where clean technologies are pulling away from fossil fuels. For every dollar invested in fossil fuels, about 1.7 dollars are now going into clean energy. Five years ago, this ratio was one-to-one.”

Energy crisis driving green momentum?

The IEA said the huge acceleration in clean energy investment over the past few years had been driven in part by many governments and investors seeking to move away from risky, expensive fossil fuels in the wake of the global energy crisis sparked by Covid-19 and Russia’s invasion of Ukraine.

Periods of strong economic growth in some regions and enhanced policy support – such as the USA’s Inflation Reduction Act and similar initiatives in Europe, Japan, and China – have also played a role, the IEA said.

More than 90 per cent of the clean energy investment increase comes from advanced economies and China, which IEA said presented “a serious risk of new dividing lines in global energy if clean energy transitions don’t pick up elsewhere”.

China boosted its clean energy investment by more than the EU or any other country last year, rising $185bn in total between 2019 and 2023, the IEA said. Over the same period, the EU’s clean energy investment rose $150bn and the US ramped up its spending by $95bn, while investment in climbed by $25bn.

However, investment in clean energy worldwide still remains far off the pace required to limit global warming to 1.5C – as set out in the Paris Agreement. According to the IEA, decarbonising at a rate that is in line with global climate goals would require clean energy technologies to outspend fossil fuels by a ratio of around nine to one by the end of the decade.

In the power sector, clean energy investment still needs to almost double over the next seven years, and power grid investment – currently standing at just over $300bn – needs to close in on $750bn by 2030, according to the IEA report.

Oil and gas firms still under-investing in clean energy

At the same time, the report shows oil and gas companies are continuing to reap hundreds of billions of dollars in profits, but are only investing a tiny fraction of those revenues in the energy transition, instead spending most of their windfall on paying back debts or boosting dividends to shareholders.

Last year oil and gas investment rose, but the share of the sector’s profits reinvested into production fell to its lowest level in 15 years, according to the report. Meanwhile, just four per cent of oil and gas spending went towards clean energy technologies last year. The IEA said it expected oil and gas major’s investment in clean energy to remain “broadly consistent” in 2023, despite the adoption of high profile net zero plans.

The IEA said the £$1.5tr returned to [fossil fuel] shareholders in the form of dividends and buybacks from 2020 to 2022 could have fully covered the investment requirements in all the “clean fuels” needed between 2023 and 2030 to put the world on a net zero pathway.

Such investment trends further underscore the huge potential stranded asset risks facing fossil fuel firms, if the world does deliver on its net zero goals and clean tech deployment starts to significantly erode fossil fuel demand. The IEA report warns that enhanced efforts to tackle climate change over the coming years would “represent a major downside risk to fossil fuel demand and a commercial risk for producers”.

“Fossil fuel investment is now more than double the amount needed in 2030 if the world is to limit the long-term temperature rise to 1.5C,” the report states. “Oil and gas companies can help drive the necessary reallocation of capital by devoting more of their resources to clean energy including to low-emission fuels. Investment in these fuels – such as bioenergy, hydrogen and CCUS – is picking up but needs to increase nearly twentyfold in the Net Zero Emissions Scenario. This may appear a daunting challenge, but it is by no means out of reach of the financial and technological resources of the oil and gas industry.”

Once again, the fossil fuel industry will not be able to say it was not warned if and when the clean energy transition finally curtails its dominance.

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