Investments in solar energy will overtake investments in oil production for the first time

Investments in renewable energy sources (RES) in the world in 2023 will grow by 24% compared to 2021 to more than $1.7 trillion. Investments in traditional energy will grow at a more modest pace – by 15% compared to 2021 – and will amount to just over $1 trillion. This is stated in the forecast of the International Energy Agency (IEA) on investments in energy of May 25. The total investment in the sector, according to IEA forecasts, will amount to $2.8 trillion in 2023.

“For every dollar invested in fossil fuels, there is now about $1.7 in clean energy. Five years ago, this ratio was one to one. One striking example is investment in solar energy, which for the first time will exceed investment in oil production,” said IEA Executive Director Fatih Birol, quoted by the agency. The agency expects $380 billion to be invested in solar generation in 2023.

The agency’s forecast explains that investment in green energy was stimulated by the improvement of the economy during a period of high prices for fossil energy sources, increased political support for the sector in the US, Europe, Japan, China and other countries, a clear alignment of climate and energy security goals.

But, the IEA notes, the largest gaps in investment in green energy are in emerging market and developing countries. Among the deterrents, the agency lists higher interest rates, unclear policy framework and market structure, weak network infrastructure, financial difficulties for utilities, and high cost of capital.

More than 90% of the increase in investment in conventional energy comes from advanced economies and China, whose companies have more than doubled their net income from fossil fuel sales in 2022 compared to the average in recent years. According to the IEA, the world’s oil and gas producers earned about $4 trillion last year.

In early February 2023, Rosneft CEO Igor Sechin said that American oil companies were leaders in terms of profit and capitalization in 2022, because instead of an accelerated energy transition, they focused on the production of traditional energy carriers. For example, the net profit of the American Exxon in 2022 increased by 2.4 times to $55.7 billion. The American Chevron increased its profit by 2.3 times to $35.5 billion, the British-Dutch Shell – by 2.1 times to $42, 3 billion

Against this background, according to the agency’s forecast, global investment in oil and gas production in 2023 will grow by 7% to more than $500 billion. Thus, the indicator will return to the level of 2019. But half of the growth in investment “is likely to be absorbed by cost-push inflation ”, specifies the IEA. The forecast says that many large oil and gas companies have announced growth in investments amid record revenues, but their investors and owners “demand to focus on income, not production growth.” As a result, the IEA believes, only major national oil companies from the Middle East will invest much more this year than last year.

According to Kirill Rodionov, an expert at the Institute for the Development of Technologies in the Fuel and Energy Complex, OPEC countries (which also include the largest oil producers from the Middle East) will account for a large part in the structure of hydrocarbon production. At the same time, in the countries of the Organization for Economic Cooperation and Development (OECD, which includes 38 countries), according to Rodionov’s forecasts, investments in oil and gas production in 2023 will decrease by 26% compared to 2015 to $ 325 billion, and in the countries of the Middle East – will grow by 61% and amount to $172 billion.

Sechin during the St. Petersburg International Economic Forum (SPIEF) warned back in 2021 that the world could face an acute shortage of oil and gas due to underinvestment in the industry. To maintain the current level of hydrocarbon production, according to his estimates, it is necessary to invest about $17 trillion until 2040.

The level of investment projected by the IEA means that in 2023, investment will more than double the levels that the IEA’s Net Zero Emissions by 2050 scenario would achieve by 2030. 2023 is expected to exceed the required level by six times.

Earlier, a similar forecast was presented by OPEC. The organization expects that in 2023 non-OPEC countries will increase investment in oil and gas exploration and production by 10% compared to 2022 to $474 billion (Vedomosti wrote about this on May 12).

Russian oil and gas companies also continue to increase investments. According to the Russian Ministry of Energy, the investments of the country’s largest companies in oil production in 2022 increased by 26.3% to 1.8 trillion rubles. The share of renewable energy sources in the energy balance of Russia will be about 10% by 2035, and by 2050 it will increase to 20%, Deputy Prime Minister Alexander Novak said on May 25 on the air of the Russia 24 channel. According to him, the sun, wind, hydroelectric power stations and nuclear power plants in Russia account for more than 40% of the energy balance, and another 50% is occupied by gas generation. “That is, almost 90% in Russia are clean energy sources,” he said.

The split in the global energy sector, if we do not take into account hydroelectric power plants, occurred at the end of the 2010s, says Alexander Kovalev, an analyst at FG Finam. The “eco-chasm” between countries is widening every year, as emerging economies lack the funds to support renewable energy development, he explains.

Senior analyst “BCS The world of investment” Ronald Smith specifies that at the current level of technology development, RES cannot replace traditional energy sources. Energy generated from wind and solar power plants cannot provide a stable supply of electricity to the market and cannot cope with the demand to replace oil products as the main transport fuel, the analyst adds. However, there are no batteries powerful enough to smooth out consumption peaks and “cannot exist without a fundamental breakthrough in technology,” Smith notes.