Clean Energy Technologies to Attract $1.7 Trillion of Global Investments in 2023

Investment in clean energy technologies is significantly outpacing spending on fossil fuels


Global investment in energy is expected to reach $2.8 trillion in 2023, of which more than $1.7 trillion is likely to go to clean technologies, including renewables, electric vehicles, nuclear power, grids, storage, low-emissions fuels, efficiency improvements, and heat pumps, finds a new report from the International Energy Agency (IEA).

The report “World Energy Investment 2023” found that investment in clean energy technologies is significantly outpacing spending on fossil fuels as affordability and security concerns triggered by the global energy crisis strengthen the momentum behind more sustainable options.

The remainder, slightly more than $1 trillion, is going to coal, gas, and oil.

Annual clean energy investment is expected to rise by 24% between 2021 and 2023, driven by renewables and electric vehicles, compared with a 15% rise in fossil fuel investment over the same period.

But more than 90% of this increase comes from advanced economies and China, presenting a serious risk of new dividing lines in global energy if clean energy transitions do not pick up elsewhere.

“Clean energy is moving fast – faster than many people realize,” said IEA Executive Director Fatih Birol. “This is clear in the investment trends, where clean technologies are pulling away from fossil fuels.”

The IEA report said clean energy investments had been boosted by a variety of factors in recent years, including periods of strong economic growth and volatile fossil fuel prices that raised concerns about energy security.

Enhanced policy support through significant actions like the Inflation Reduction Act (IRA) in the U.S. and initiatives in Europe, Japan, and China, have also played a role.

Clean energy investment has also experienced a significant boost due to the recovery from the COVID-19 pandemic and the response to the global energy crisis.

The analysis indicates that the volatility in fossil fuel markets caused by Russia’s invasion of Ukraine has accelerated the deployment of various clean energy technologies, despite a short-term scramble for oil and gas supply.

The ratio of clean energy spending to fossil fuel spending is now 1.7:1, compared to 1:1 five years ago. The momentum has been led by renewable power and electric vehicles (EVs), with contributions from areas like batteries, heat pumps, and nuclear power.

It is expected that low-emissions power will constitute nearly 90% of total investment in electricity generation in 2023, with solar investments surpassing spending on upstream oil for the first time.

Solar is the star performer, and more than $1 billion per day is expected to go into solar investments in 2023 ($380 billion for the year as a whole), edging this spending above that in upstream oil for the first time.

Demand for electric cars is booming, with sales expected to leap by more than one-third this year after a record-breaking 2022.

As a result, investment in EVs has more than doubled since 2021, reaching $130 billion in 2023. Global sales of heat pumps have seen double-digit growth since 2021.

Emerging Economies Lagging

 The most significant shortfalls in clean energy investment are in emerging and developing economies.

The positive momentum in clean energy investment is not evenly distributed across countries and sectors, highlighting challenges that policymakers must address for a broad-based and secure transition.

Advanced economies and China account for more than 90% of the increase in clean energy investment since 2021, with some positive developments in solar investment in India, deployment in Brazil, and investor activity in parts of the Middle East.

However, investment in many countries is being held back by factors including higher interest rates, unclear policy frameworks and market designs, weak grid infrastructure, financially strained utilities, and a high cost of capital.

The cost of financing is crucial for clean energy investments, as they often require significant upfront spending despite lower operating costs in the long term.

Many emerging and developing economies experience slow growth in clean energy investment and a high number of people lacking access to modern energy services.

Power sector spending in emerging markets and developing economies (EMDEs) outside China remains low compared to global levels.

Investment in these regions reached around $230 billion annually, only about 20% of the global total. While there has been a 7% increase in 2022, advanced economies and China experienced a faster growth of 14%, surpassing $850 billion.

Some EMDEs, like India, are making efforts to deploy clean power and expand their domestic supply chains. Renewable power investment is also picking up in the Middle East, Brazil, and South Africa.

Increasing power sector spending in EMDEs is crucial to meet access, security, and sustainability goals.

The key question is how quickly clean energy investment can scale up in these economies, requiring supportive strategies, policies, and improved access to finance.

Sustainable finance instruments are currently concentrated in advanced economies, but efforts are being made to expand their issuance in other regions. Scaling up these instruments and obtaining greater support from development finance institutions are crucial for furthering and accelerating clean energy transitions.

Challenges in the Sector

Prices for certain clean energy technologies, such as solar PV modules and wind turbines, have increased due to higher input prices for critical minerals, semiconductors, steel, and cement.

Permitting issues have been a concern for investors, particularly in wind and grid infrastructure projects.

While solar deployment has been increasing, the reliability of project pipelines for other technologies has been less consistent.

Investment in wind power has fluctuated in response to changing policy circumstances, and hydropower has been on a downward trend despite its importance in providing power market flexibility.

Investment in the coal supply is projected to increase by 10% in 2023, surpassing the levels seen before the pandemic.

Although investment in new coal-fired power plants continues to decline, there was a concerning development in 2022 when approvals were granted for 40 GW of new coal plants.

This represents the highest number since 2016.

Notably, the majority of these approvals were in China, highlighting the country’s significant emphasis on energy security following substantial challenges in the electricity market during 2021 and 2022. This emphasis persists despite China’s widespread implementation of large-scale low-emission technologies.

Competition for clean energy manufacturing and critical minerals supply is a concern for resilient energy transitions.

An additional $1.2 trillion investment is needed in clean energy manufacturing and critical minerals by 2030. EV sales and battery storage investment have led to a wave of lithium-ion battery manufacturing projects.

However, the availability of critical minerals may not meet demand.

Exploration and investment in critical minerals mining increased, but the transition to production takes time. Innovation in critical minerals and batteries remains crucial, with rising public and corporate R&D spending.

Venture capital funding for clean energy may also face challenges in the current economic environment.

Developing the Grid 

Weak grid infrastructure remains a limiting factor for renewable investment in many developing economies.

The main challenges in clean energy transitions include lagging investment in grid expansion and modernization, the need for flexible power system technologies to accompany the growing share of solar and wind energy, supply chain and skills constraints, and addressing geographical imbalances in investment.

Investment in electricity grids experienced an 8% increase in 2022, building upon the rebound seen in 2021. However, there are indications of a slowdown in grid spending in 2023.

Notably, many emerging markets and developing economies are falling behind in grid investment, which raises concerns given the anticipated rise in electricity demand.

Investment flows in energy efficiency and end-use sectors experienced growth in 2022 due to new policies and high energy prices. However, spending is expected to flatten in 2023 due to a slowdown in construction activity, higher borrowing costs, and financial strains on households.

The Way Forward 

An alternative approach to furthering the clean energy transition involves increasing investment in low-emission fuels and carbon capture, utilization, and storage (CCUS).

New policies driven by energy security and climate concerns are leading to a rise in projects related to these areas. Europe is witnessing a growing number of electrolytic hydrogen projects, while the Inflation Reduction Act in the United States has sparked investor interest in hydrogen and CCUS.

Significant large-scale projects, well-capitalized sponsors, and acquisitions by oil and gas companies, particularly in transport biofuels and biogases, indicate that investment in low-emission fuels could experience substantial growth in the coming years.

Investment in renewable energy, grids, and batteries has gained momentum during the global energy crisis, while capital spending on fossil fuel power generation has declined.

The power sector witnessed a 12% growth in investment in 2022, surpassing $1 trillion for the first time. It is expected to continue growing in 2023, reaching nearly $1.2 trillion. Renewables and grids dominate power sector investment, with an estimated investment of over $1 trillion in 2023.

Battery storage investment met strong expectations in 2022 and is anticipated to experience further growth in 2023. This growth is supported by initiatives such as the U.S. Inflation Reduction Act and incentives in Europe, Australia, China, Japan, and Korea.

Global public spending on energy research and development (R&D) increased by 10% in 2022, reaching nearly $44 billion, with 80% of the funding allocated to clean energy topics.

However, China’s significant growth in R&D spending overshadowed the sluggishness in other countries.

Several countries, including Canada, Germany, Italy, and France, have implemented measures to stimulate innovation in clean energy supply chains.

New programs for research and demonstration, particularly in areas like nuclear reactors and battery research, have also been announced in various countries.

In March, a new report by the International Renewable Energy Agency (IRENA) stated that the lack of adequate progress in the global energy transition would require even more investment, and a systematic change in the volume and type of investments is necessary to prioritize the transition.

According to a BloombergNEF report, global investment in energy transition reached a record $755 billion in 2021.

(The article has been updated with new information since it was published)