Solar investment to outstrip oil for first time ever

While the milestone buoys hopes that pledges to cut carbon emissions can be met, there is a growing risk of a divide between wealthy nations and developing countries.

For every dollar invested in fossil fuels, about 1.7 dollars are now going into clean energy.

Investment in solar generation in 2023 will outstrip for the first ever spending to develop oil production, the International Energy Agency said on Thursday.

The milestone will buoy hopes that pledges to drastically reduce carbon emissions can be met, though the IEA said there is a growing risk of a divide between wealthy nations and developing countries.

The IEA said about US$2.8 trillion ($4.3 trillion) is set to be invested globally in energy in 2023, of which more than US$1.7 trillion is expected to go to what the agency described as “clean” technologies – which includes renewables, electric vehicles, nuclear power, grids, storage, low-emissions fuels, efficiency improvements and heat pumps.

The remainder, slightly more than US$1 trillion, will be spent on coal, gas and oil.

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

“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. One shining example is investment in solar, which is set to overtake the amount of investment going into oil production for the first time.”

The soaring investment is not unexpected as countries move to aggressively expand renewable energy generation capacity to meet pledges to be net zero by 2050, but the IEA said the recent global energy crunch has had some unexpected consequences.

The IEA said spending on upstream oil and gas is expected to rise by 7 per cent in 2023, the highest since 2019, though this was driven predominantly by large national oil companies in the Middle East.

An aerial view of homes in Cairns with solar panels.

Other oil companies, which would have realised bumper profits fuelled by recent price spikes following Russia’s invasion of Ukraine, returned the cash to shareholders via buybacks or debt repayment – rather than back into traditional supply.

Led by the Middle East investment, the IEA said the fossil fuel investment is set to rise in 2023 to more than double the levels needed in 2030 under its net zero emissions by 2050 forecast.

The IEA also said global coal demand reached an all-time high in 2022 as energy importing nations around Europe and Asia were forced to turn to traditional energy source to compensate for the loss of cheap Russian gas.

Unlike in oil, however, investment in coal will soar, and the IEA said investment in the fuel source is on course to reach nearly six times the levels envisaged in 2030.

The IEA also highlighted stagnant spending by the oil and gas industry low-emissions alternatives such as clean electricity and carbon capture technologies, which was less than 5 per cent of its upstream spending in 2022. That level was little changed from last year – though the share is higher for some of the larger European companies.

The biggest shortfalls in clean energy investment, however, are in emerging and developing economies, the IEA said, though it acknowledged investments in solar in India and in renewables in Brazil and parts of the Middle East.

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

“Much more needs to be done by the international community, especially to drive investment in lower-income economies, where the private sector has been reluctant to venture,” the IEA said.