Powering clean progress: The state of renewable energy investment in 2023
Watch the news and you'd be forgiven for feeling worried about the long-foreseen climate change-related disasters being reported on currently – from fires and floods, to melting glaciers and global air and sea surface temperature increases
Above: Global sea surface temperatures are at their highest on record, and at a time of year when ocean temperatures should be cooling. The oceans are the biggest carbon sink on the planet; warmer oceans absorb less carbon dioxide. Could this be a climatic tipping point? Source
If you feel we are on a one-way road to disaster, please read on for some relief and a glimmer of hope. In this blog, we are going to highlight another increasing trend, but one to be celebrated, and that is renewable-energy investments.
Why the big focus on renewable energy?
Global investment into renewable energy is on the rise, and for good reason.
Renewable energy is not only a naturally replenished source for electricity generation, but renewable energy generators – specifically wind power and solar power – are now the lowest cost energy sources to utilise.
They are also the fastest to deploy, can be installed at any scale and, most crucially, are playing a key role in the fight against climate change and the strive towards a future of clean energy.
Renewable energy sources to generate electricity
Burning fossil fuels (coal, oil and gas) for energy are by far the largest contributor to global climate change, accounting for over 75 percent of global greenhouse gas emissions and nearly 90 percent of all carbon dioxide emissions.
Replacing fossil fuels with renewable energy to generate electricity, therefore, has a direct and immediate impact on emission reductions.
Give us the facts and figures
In 2022, global investment in renewable energy reached a record high of nearly half a trillion US Dollars.
This was a 15% increase over 2021, and it is the highest level of investment in renewable energy sources since the International Energy Agency (IEA) began tracking it in 2004.
Above: Annual global investment into renewable energy sources by sector has increased 15-fold in 18 years. Source
The wonder of wind power and wind energy
The majority of these investments are going into solar power and wind power.
Wind energy is a by-product of solar energy, through wind being produced by the movement of air relative to Earth's surface.
This is an equally abundant renewable energy source, with 36 wind projects currently selected as part of South Africa's Renewable Independent Power Producer Programme (REIPPPP).
What’s geothermal energy about
Less of a household name, geothermal energy revolves around heat energy from the earth.
This renewable energy resource will remain available for billions of years, with it being created through heat flowing from Earth’s interior.
The shining example of solar energy
Solar PV saw a 36% increase in investments over the previous year, with 260 GW of new solar capacity being added to energy grids worldwide.
260 GW is the same peak power output as 260 nuclear power stations… put online in one single year! This is considerable, given that there are only around 430 nuclear power stations operating worldwide.
Why is solar booming?
Solar power, through solar panels and solar PV, now provides the cheapest form of energy of all.
With solar energy being the most affordable of our abundant renewable energy resources, the demand for this energy source to generate electricity is only going to increase.
As a renewable energy commodity, this means the volumes result in even lower-cost solar, further accelerating its deployment.
Above: Solar energy is now the lowest-cost energy source when full lifetime costs (installation, operation and maintenance, decommissioning) are taken into account. Source
The cost of solar PV has fallen by more than 80% in the past decade, and the cost of wind power has fallen by more than 50%.
This has made renewable energy a more affordable option for businesses and governments, and this demand has created the opportunity for investors to finance these energy assets.
The ESG Driving Force
Another factor driving renewable energy investment is the need to reduce greenhouse gas emissions such as carbon dioxide, with resulting ESG policies that are being adopted by corporations globally.
Following these commitments are vast movements of money out of fossil fuels, and into renewable energy sources, driven by decarbonisation goals.
Some of the most notable commitments to decarbonisation are:
- BlackRock: The world's largest asset manager has committed to achieving net zero emissions by 2050. BlackRock has said that it will no longer invest in new coal-fired power plants and that it will reduce its exposure to oil and gas.
- Vanguard: The second largest asset manager in the world. In 2021, Vanguard announced that it would no longer invest in companies that derive more than 20% of their revenue from thermal coal.
- State Street: The third largest asset manager in the world. In 2022, State Street announced that it would no longer invest in companies that are not aligned with the Paris Agreement.
- CalPERS: CalPERS is the largest public pension fund in the United States. In 2021, CalPERS announced that it would divest from all thermal coal companies by 2023.
- Norges Bank Investment Management: Norges Bank Investment Management is the sovereign wealth fund of Norway. In 2020, Norges Bank announced that it would divest from all coal companies.
The total assets under management of the above institutions run into the tens of trillions of US Dollars.
However, it is not just their capital that is important, but the knock-on effects on the market, as businesses looking to raise capital downstream are encouraged to also comply and adopt similar policies.
We can see this pattern forming here at Sun Exchange.
The Sun Exchange platform enables anyone, anywhere, to invest into solar PV cells, and earn ongoing revenues from selling the clean energy they produce to high-impact organisations such as schools, retirement homes and farms.
Whereas the platform was originally built for individuals wanting to take climate action whilst putting money to work doing good, we have seen a significant increase in businesses and organisations signing up and using our platform.
There are now over 100 institutions producing solar energy and lowering global carbon emissions through Sun Exchange. The largest transactions taking place through our platform are now from companies, with solar projects being funded by French energy firm CVE, global reinsurer Hanover RE, ABSA Bank and US investment platform Energea.
The role of government in renewable energy
The growth of renewable energy, a formidable power sector, is also being supported by government policies.
Many governments around the world are now providing financial incentives for renewable energy projects and renewable energy systems – in doing so, the market grows, creating jobs and stimulating economic growth.
These incentives include tax breaks, subsidies, and feed-in tariffs, and these policies help to make renewable energy more affordable and accessible, and they are driving investment in this sector.
In South Africa for example, investors into solar energy assets can claim accelerated tax depreciation, allowing taxpayers to claim a 125% deduction in the first year for all renewable energy projects.
What does the future hold for renewable energy investment?
The surge in renewable energy investment is no doubt good news for the environment and the economy.
As the energy costs of renewable energy continue to fall and government policies become more supportive, we can expect to see even more investment in this renewable energy sector in the years to come, with investments into non-renewable energy fossil fuels dropping.
The fall of fossil fuels
The net effect is that the already observed pattern of renewable energy investments surpassing non-renewable energy fossil fuel investments is sure to continue.
Above: Investments into fossil fuels have been dropping since 2015, while investments into renewable energy have been increasing. Source
The IEA expects global investment in renewable energy to reach $2.5 trillion by 2030.
This growth will be driven by a number of factors, including the continued fall in the cost of renewable energy technologies, the need to reduce greenhouse gas emissions, and supportive government policies.
However, The IEA has also warned that the world needs to invest $100 trillion in clean energy by 2050 in order to limit global warming to 1.5 degrees Celsius.
Renewable energy is a key part of this investment, and it is expected to play a major role in the global energy mix in the coming decades.
The global picture is important
More than 90% of clean energy investments since 2021 have been in advanced economies like the United States, the EU and China.
China's total clean energy investments since 2021 have exceeded every other country in the world.
The picture is not so great in emerging markets, and arguably, these are the economies which need access to the benefits of solar energy the most, otherwise they will be less competitive in global trade.
However, higher interest rates, unclear policy frameworks, unstable markets, and financially-strained utilities and a high cost of capital are holding back investments in many other countries, especially in markets across Africa.
Africa, the world's sunniest continent, home to the world's fastest growing populations, currently receives just 1.5% of global renewable energy investment - there is an enormous opportunity here.
Growth in renewable energy investment into Africa will lead to positive benefits for its economies and local and global environment.
It will create jobs, stimulate economic growth. It will also help to make the world a cleaner and more sustainable place to live.
What can you do to support renewable energy investment into Africa?
There are a number of things that you can do to support renewable energy investment in Africa.
- Invest in solar cells that power solar projects in South Africa through the Sun Exchange platform.
- Contact your elected representatives and urge them to support pro-Africa renewable energy investment policies.
- Educate yourself and others about the benefits of renewable energy sources in emerging markets.
- When buying products and services from companies based in Africa, choose to buy from those that use renewable energy systems to manufacture their products whenever possible.
By taking these actions, you can help accelerate Africa's transition to a clean energy future, and the whole world will benefit from a more stable and predictable climate, and future generations may have a chance of thriving in the world we leave them.