With Q1 and Q2 behind us in 2024, the global investment landscape is experiencing a paradigm shift towards clean technologies, significantly outpacing investments in traditional fossil fuels. The International Energy Agency’s (IEA) latest World Energy Investment 2024 report projects total global energy investments to surpass $3 trillion, with a staggering $2 trillion earmarked for clean energy technologies.
The shifting tide represents nearly double the amount allocated to fossil fuels, marking a pivotal global energy transition moment. Proponents tout benefits such as reduced environmental impacts, improved energy security, and new economic opportunities, but is that really the case? We’ll break down the latest numbers and investor sentiments to see where tomorrow’s energy investing sympathies truly lie.
Benefits of Clean Energy Investment
Cost Competitiveness of Clean Technologies
New advances in renewable energy systems technology and growing economies of scale for producers have driven down the costs of renewable energy sources such as solar photovoltaics (PV), nuclear, and wind power. New government funding sources, tech advancements like super-efficient solar cells, and decreasing costs have made these technologies increasingly attractive investments compared to coal, gas, and oil. By their nature, these commodities subject portfolios to price volatility from various often uncontrollable factors such as inflation, weather, political unrest, disrupting tech, and even rumors changing market sentiment.
Policy Support and Regulatory Environment
Supportive policies and regulatory frameworks, particularly in the U.S. and Europe, have also bolstered investment in clean energy. The recently enacted ADVANCE Act, the Inflation Reduction Act, and the Bipartisan Infrastructure Law provide a host of varying incentives, such as subsidies, tax credits, and renewable portfolio standards, which have incentivized businesses and governments to prioritize sustainable energy solutions.
In a 2023 interview at the Brookings Institution, U.S. National Security Adviser Jake Sullivan said that the United States is “leveraging the Inflation Reduction Act to build a clean-energy manufacturing ecosystem rooted in supply chains here in North America, and extending to Europe, Japan, and elsewhere.”
Addressing Environmental Imperatives
Global commitments to combat climate change, showcased by highly-touted and strong participation in initiatives like the Paris Agreement, have heightened the urgency of calling on all nations to do their respective parts in decreasing the harms of environmental impacts. While the Paris Agreement became a hot-topic political point, it, and many initiatives like it, have spurred the public and private sectors (accomplished mainly through public-private partnerships (PPP)) to shift investments away from fossil fuels to cleaner alternatives.
The World Economic Forum’s July 2024 agenda touts that “Public-private partnerships are crucial for addressing the ‘energy trilemma’ – ensuring security, affordability, and sustainability. Collaborative efforts can help ensure energy availability, create a net-zero energy value chain, and make renewable energy accessible to all.”
Advancements in Energy Storage and Bolstered Supply Chains
The rapid pace of technological innovation, especially in areas like energy storage and electric vehicles, has created new opportunities for investment in clean energy supply chains. Startups, blue chips, and major economies alike are all vying for leadership in these sectors, driving further investment. In fact, the Department of Energy (DOE) has supported or currently supports over 30 different energy storage technology projects, including previously thought moonshots like electrochemical, electromechanical, thermal, and chemical storage.
Challenges Still Present to Clean Energy Investment
Despite these positive developments, the IEA report also highlights significant challenges on the road to a complete shift to clean energy investment.
Emerging and Developing Economies
While clean energy investment in emerging economies is growing, there is still significant potential for it to catch up to what is required to meet their energy demands sustainably. High capital costs remain a barrier to developing new projects in many regions worldwide, however, targeted financial support and investment could unlock greater potential.
For example, the U.S. has a massive demand for minerals needed in the energy transition, like cobalt and lithium, produced in emerging economies like many African and Central American countries. Partnerships centered around trade and investment relations and research and data collaborations for clean energy industries are a win-win for both sides. Still, sustaining these will require bipartisan support, statesmanship, and grit to see gains through to fruition.
Aging Grid Infrastructure and Lack of Storage
Investments in grid infrastructure and electricity storage, crucial for integrating intermittent renewable energy sources, are increasing, but America’s aging energy infrastructure still presents many hurdles. The lack of programming within municipal, state, and federal capital improvement plans (CIPs) hampers the ability to fully leverage renewable energy potential.
Popularity of Oil and Gas Investments
While there is a notable shift towards clean energy, investments in oil and gas continue to dominate many portfolios for high returns and relative stability. Comparatively, the dramatic decrease seen in environmental, society, and governance (ESG) driven fund investment in recent years was largely a product of poor performance.
While the tide may be shifting with the benefits we noted above, investors taking a bottom-line approach (over a triple bottom line that redefines success beyond financial metrics) may need more convincing before completely offloading investments in oil and gas anytime soon.
Be Informed Not Influenced in the Wide World of Energy with Shale
The global clean energy investment surge in 2024 signals a profound transition towards a more sustainable energy future, and we’re excited to bring our readers the latest developments. To continue following all things energy, subscribe to our flagship publication, Shale Magazine, or tune in to our award-winning podcast, The Energy Mixx Radio Show.
Subscribe to get more posts from Tyler Reed
