The Energy Transition Trend
Based on a report by BloomberyNEF’s annual accounting of global investment in low-carbon energy transition, the global energy transition investment has totalled to US$1.1 trillion in 2022 (up by 31% on the previous year) and this is the first time ever the figure has been measured in trillions. These figures include investment in projects such as renewables, storage, chagrining infrastructure, hydrogen production, nuclear, recycling, CCS, as well as end-user purchases of low-carbon tech such as small-scale solar, heat pumps and zero-emission vehicles.
Although renewable energy remained the largest sector at US$495 billion (up 17% y-o-y), electrified transport (tracks spending on EV and charging infrastructure) is growing at a much faster rate and hit US$466 billion (up by 54%). China, no doubt, is by far the largest contributor, accounting almost half of the global energy transition investment, while US is a distant second.
Climate-tech companies, on the other hand, raised a total of US$119 billion from global public equity markets and private investors in 2022, down by 29% from the year before during a challenging year in the markets.
With the exception of nuclear power, which has been flat in recent years, all other sectors also saw record levels of investment i.e. Electrified heat saw US$64 billion in funding; Sustainable materials grew to US$30 billion; Energy storage surged to US$15.7 billion; Carbon capture and storage hit US$6.4 billion. Hydrogen was the smallest sector at just US$1.1 billion but grew the fastest, more than tripling investment y-o-y.
The Leading Countries in Energy Transition Investment
China’s energy transition spending emerged as top on the list, hitting US$546 billion in 2021, capturing almost half of the world’s total with its renewable energy and EV sectors ramping up. US remains the second largest funding destination for energy transition technologies with a total of US$141 billion in 2022, up by 11% from 2021. The new climate legislation in the US is expected to drive a rapid acceleration in this area in the coming years.
Germany retained its third position, thanks for a growing EV market that made up for a slowdown in renewables. Investment in France picked up slightly in 2022 but the investment in UK dropped by 20% in comparison. The rest of the countries i.e. Japan, South Korea, India, Spain and Italy retained their places in the Top 10 chart.
Energy-Demand Outweighs Energy-Supply
Findings from BloombergNEF have shown that the demand-side investment in energy transition technologies has now surpassing the supply side, a significant triumph in the energy transition as the market is accepting and adopting the transition, hence, giving noteworthy rise to the demand.
Climate Tech Faring Well
Climate tech companies have raised a total of US$119 billion in 2022, about 29% decline compared to 2021. With challenging backdrop in the public markets throughout 2022, it was the steep decline across all types of public equity financing that drove the drop in headline numbers. Nevertheless, climate tech was faring well against the downward trend in VC investments as of end of Q1 2023 according to KPMG Venture Pulse Report. VC/PE investment in climate tech increased by a small 3% as appetite for private opportunities in climate tech held strong during this depressed market.
Getting on the Bandwagon
Given the encouraging figures and upward trend on the global investment in low-carbon energy transition, it is almost tempting to quickly jump into the bandwagon and ride on the coattail. But as always, investors must remain vigilant in identifying potential market deals particularly in the VC and PE market. As governments, big corporation, businesses, and investors continue to recognize the inevitable change towards low-carbon energy transition, we can anticipate further growth and transformative changes in the years to come.