'Demand has never been higher': How the energy crisis is proving an 'accelerant' for renewable energy

Latest data from BloombergNEF reveals 11 per cent increase in global renewable energy financing, as investment reaches record levels – is a tipping point being reached?

The global economic outlook may be worryingly bleak, but there is still little evidence that inflation and dwindling confidence are impacting the booming renewables market as investment continued to hit record levels throughout the first half of the year.

BloombergNEF (BNEF) today published the latest edition of its Renewable Energy Investment Tracker for the first half of 2022, confirming that global investment in renewable energy totalled $226bn, setting a new record for the first six months of a year. The analyst firm concluded that far from derailing surging investment in clean energy infrastructure, Russia’s invasion of Ukraine and the resulting turmoil on global energy markets was acting as an “accelerant” for the renewables industry.

The report confirms that investment increased sharply across almost all market segments, with some key sectors posting record growth as developers rushed to bring more renewables capacity online as governments around the world looked to reduce their exposure to soaring fossil fuel prices.

For example, investment in new large- and small-scale solar projects rose 33 per cent year-on-year to a record-breaking $120bn, while wind project financing rise 16 per cent to $84bn. Booming project investments were matched by a record-breaking 63 per cent increase in venture capital and private equity investments in renewables and energy storage firms, with $9.6bn raised.

China once again dominated the market, posting “remarkable investment growth in both wind and solar project finance”, according to BNEF. Large-scale solar investments totaled $41bn during the first half of the year, up a massive 173 per cent year-on-year, while investment in new wind projects also more than doubled to $58bn.

“Green infrastructure is the most important investment area that China is relying on to boost its weak economy in the second half of 2022,” said Nannan Kou, BNEF’s head of China analysis. “The investment growth trend follows China’s strategy to build new renewable generation capacity so that it can replace its existing coal fleet. China is well on track to hit its 1,200GW wind and solar capacity target by 2030.”

The Asia-Pacific region was the primary driver of growth, but other key markets also posted strong performances. For example, the global small scale solar market continued to rapidly expand, while the US solar market topped $7.5bn over the period and Japan invested $3.9bn in new solar projects. The US wind power market also grew nine per cent to $19.7bn, although it was still dwarfed by the $57.8bn invested in Chinese wind energy projects during the first six months of the year.

The global offshore wind industry was another bright spot, with investment climbing 52 per cent from the previous year, to $32bn. Chelsea Jean-Michel, offshore wind analyst at BNEF, said further rapid expansion was in the pipeline for the industry. “Investments in 2022 will flow into projects coming online in the next few years as the offshore wind installed base is set to grow 10-fold from 53GW in 2021 to 504GW in 2035,” he said. “Offshore wind projects enable companies and governments to make progress towards their decarbonisation goals at scale. The United Kingdom, France and Germany are just a few of the countries that have increased their offshore wind targets in the first half of 2022, signaling further support for investment in the technology.”

Some segments of the market bucked the trend. After a very strong first half in 2021, public market issuances for renewable energy companies dropped 65 per cent in the first half of 2022, totaling $10.5bn. Meanwhile, investment in biomass, waste-to-energy and small hydro projects all fell.

However, the broader story is one of soaring clean energy investment as the competitiveness and energy security benefits associated with renewables become ever more obvious with each increase in fossil fuel prices. BNEF acknowledged that both the wind and solar sectors are facing rising input costs as key materials such as steel and polysilicon experience inflation, financing costs rise with increases in interest rates, and global supply chains face a period of significant disruption. But the analyst firm’s conclusions echo that of a recent report from the International Renewable Energy Agency, which found that any cost pressure on renewables developers was being dwarfed by the soaring cost of coal, oil, and in particular gas. BNEF said its latest figures “indicate that investor appetite is stronger than ever, in part due to the very high energy prices currently being seen in many markets around the world”.

Albert Cheung, head of analysis at BloombergNEF, said the sector was also benefitting from the willingness of governments around the world to place renewables at the heart of the energy security strategies they have developed in the wake of the Kremlin’s invasion of Ukraine. “Policy makers are recognising that renewable energy is the key to unlock energy security goals and reducing dependence on volatile energy,” he said. “Despite the headwinds presented by ongoing cost inflation and supply chain challenges, demand for clean energy sources has never been higher, and we expect that the global energy crisis will continue to act as an accelerant for the clean energy transition.”

Inevitably, the latest series of renewable energy investment records come with the caveat that clean energy infrastructure investment needs to rapidly increase by orders of magnitude, if the world is to get itself on to a decarbonisation pathway compatible with keeping temperature below increases either the 1.5 C or even the 2C goal set out in the Paris Agreement.

As a sobering new report from investment research firm MSCI warned last week, the world’s listed firms need to reduce their carbon intensity by 10 per cent a year every year through to 2050 to deliver on the 1.5C goal. Progress is being made, but the corporate world is a long way from delivering such rapid decarbonisation. As Sylvain Vanston, executive director for climate change investment research at MSCI, observed listed companies are currently on track to deliver 2.9C of warming by 2100. “A planet that is 2.9C warmer by 2100 is not just a more volatile world, it is a dislocated world,” he said. “‘Disorderly transition’ scenarios are a euphemism for chaos. Every step by companies to cut their absolute emissions and every effort by policymakers to drive momentum is critical because every tenth of a degree matters.”

But there is now growing evidence that crucial tipping points in the net zero transition could be being reached. The cost-competitiveness and technical viability of clean technologies are now so obvious that investment is continuing to surge even in the face of some of the worst economic headwinds in recent times. Renewables provided 40 per cent of UK power last year, and despite all the concern about what happens when the does not blow engineers are confident emission they can deliver a zero grid at relatively low cost. The Climate Change Committee reckons soaring fossil fuel prices means the net zero transition associated will now be net beneficial to GDP even before you consider the massive, but hard to quantify, co-benefits with decarbonisation. Siren voices calling on governments to respond to soaring energy prices by ditching net zero plans are being largely resisted. Even the White House looks like it could belatedly pass landmark climate legislation that is expected to deliver a huge increase in US clean energy infrastructure investment.

It all goes a long way to explaining why the International Energy Agency recently predicted that global power sector emissions were on track to record a slight dip this year, further fuelling hopes that energy-related emissions could soon peak, if they have not already done so .

Delivering on global climate goals remains the most daunting of challenges, and predictions that the worst climate scenarios can be avoided would have a lot more credibility if global emissions were actually falling. In a week when oil and gas majors post record profits that they seem intent on using to fund share buy-backs rather than ramp up clean energy investment, it seems presumptuous to claim conclusively that a tipping point in the net zero transition has been reached.

But the resilience of the renewables sector feels significant. As BNEF founder Michael Liebreich observed on Twitter this week: “Having pretty much stopped the growth in emissions, we celebrate the win and push on. When you are a kid and you traverse over a see-saw (teeter-totter for you Muricans) , the second half is the scary-but-quick bit.”

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