Global Renewable Energy Investments Outlook 2023
In 2023, renewable energy or green energy will lead the fight against climate change. Solar, wind, and clean sources gain global interest, driven by technology advancements, policies, and public demand. As we grapple with climate change, the transition to renewable energy has become more than just an environmental imperative - it's a financial one. Investments in renewable power are not only driving the global shift towards a more sustainable future, but they're also offering attractive returns for investors.
Renewable energy investments in 2023
According to the International Energy Agency (IEA), global renewable capacity is set to increase by 107 gigawatts (GW) to more than 440 GW in 2023, driven by expanding policy support, growing energy security concerns, and improving competitiveness against fossil fuel alternatives. In 2023, global renewable energy statistics reveal that investments in the sector aim to reach $1.7 trillion, with funds allocated to clean energies, including renewables, nuclear, grids, storage, low-emission fuels, efficiency improvements, and end-use renewables, as reported in the IEA’s World Energy Investment 2023 report. Around $1 trillion will go to unabated fossil fuels, with 15% for coal and the rest for oil and gas. These fund flows have led to the clean energy to fossil fuel investment ratio becoming 1.7:1, compared to 1:1 five years ago.
Global trends in renewable energy investment in 2023 are driven by robust demand and attractive, long-term incentives. However, this growth may be tempered by supply chain disruptions, trade policy uncertainty, inflation, increasing interest rates, and interconnection delays. According to Deloitte's 2023 Renewable Energy Industry Outlook, these challenges could exacerbate supply chain constraints and interconnection bottlenecks, further boosting prices and extending project timelines. Despite these challenges, the renewable power industry is poised for growth, with BDO Global estimating that 33% of the world’s electricity will come from renewables by 2024. This growth is fueled by increased government spending on renewables as part of economic recovery plans.
Investment in renewable energy by country
China: China is at the forefront of green energy investments and is forecast to account for nearly half of the additional renewable generation by 2025, as reported by IEA. This dominance is due to the country's scale and strategic policies and initiatives to achieve carbon neutrality by 2060. For instance, the Chinese government has implemented aggressive renewable energy targets, subsidies for clean energy projects, and research and development in green technologies. The country has also seen growth in the electric vehicles sector and investments in steel recycling (sustainable materials) that have bolstered the expansion of its investments in the energy transition.
United States: Despite a dip in solar capacity in 2022 due to challenges stemming from the pandemic, the United States is set for a significant resurgence in 2023. National energy policies and strategic initiatives drive the push to install an estimated 29.1 GW of solar power in the coming year, as the U.S. Energy Information Administration reported, showcasing the country's commitment to expanding its renewable energy businesses.
The European Union: The European Union is also a significant player in the renewables space with its commitment to the Paris Agreement and ambitions to increase its headline 2039 target for renewables from 40% to 45%, as reported in a REPowerEU publication by the EU.
What are the factors driving investment growth in renewable energies in 2023?
Policy support: The unprecedented growth in global renewable capacity, set to increase by 107 GW to over 440 GW in 2023, is primarily driven by expanding policy support from various nations. For instance, the European Union has been integrating a comprehensive hydrogen strategy to adopt renewable and low-carbon hydrogen alternatives to energy. Alternatively, emerging markets like Colombia have introduced new legislation to increase solar and wind energy incentives.
Solar PV capacity: Solar PV capacity(Solar PV capacity refers to the maximum electricity a solar panel can produce under optimal sunlight conditions), including both large utility-scale and small distributed systems, accounts for two-thirds of this year's projected increase in global renewable capacity. Policymakers in many countries, particularly in Europe, have actively sought alternatives to imported fossil fuels to improve energy security, creating a favorable environment for solar PV.
Wind capacity growth: In 2023, onshore wind capacity additions are projected to surge by 70%, reaching a record-breaking 107 GW as per the IEA. Wind power projects' economic benefits and efficiencies will be driven by the increased storage capabilities for on and offshore wind.
European Union's Response to Energy Crisis: The crisis triggered by Russia's invasion of Ukraine has accelerated renewable energy deployment in the European Union, driving the bloc to reduce its dependence on Russian natural gas imports urgently. The rapid growth in distributed solar PV is the main reason for the positive outlook.
Increase in investments from natural resource companies: Mining, oil, and gas companies are on track to increase their investments in renewable energy technology as they strive to diversify their portfolios and reduce carbon emissions. S&P Global estimates that in 2023, major oil and gas companies joining the Oil and Gas Climate Initiative will increase to 20 from 13.
Who are the most prominent renewable energy investors?
NextEra Energy, Inc.
Market cap: $147.57bn
NextEra Energy, Inc. is a leading US clean energy company with 30,000 MW capacity from wind and solar. It is the world's largest utility company in wind and solar generation and is committed to a 67% CO2 emissions reduction by 2025.
Iberdrola SA
Market cap: $72.67
Iberdrola SA is a Spanish utility company headquartered in Bilbao. It operates in 40+ countries across Europe, the Americas, and Asia. The company has a strong presence in renewables and uses diverse energy sources, including wind, hydro, nuclear, and natural gas.
Orsted A/S
Market cap: $36.19bn
Orsted A/S is a Danish renewable energy company, the world's largest offshore wind power developer with over 7.5 GW capacity installed or under construction. It operates in the UK, Germany, Taiwan, and the US. Committed to sustainability, Orsted aims for carbon neutrality by 2025.
The future of renewable energy investments beyond 2023
Looking beyond 2023, the renewable energy sector is poised for significant growth. This growth is not just a prediction but a necessity as the world grapples with the urgent need to mitigate climate change and transition to a more sustainable energy future.
According to a Forbes publication, the investment boom in renewable energy is set to continue into 2024 and beyond. The article highlights that the renewable energy sector is expected to attract more than $10 trillion in investment by 2050, with solar and wind power leading the way. The increasing competitiveness of renewable energy and growing public and corporate commitment to sustainability are driving this trend. This growth will be powered by robust demand and the record-breaking raft of clean energy incentives in the Inflation Reduction Act (IRA). The future does come with its own set of challenges. According to a McKinsey report, the renewable energy sector is set to face several challenges that will shape its future beyond 2023, including scarcity of top-quality land, labor shortages, and supply chain pressures.
Conclusion
In closing, 2023 global renewable energy investing will surge, driven by policy changes, solar and wind power growth, and favorable initiatives from natural resource companies. Though the future is bright for the sector tackling challenges will be crucial for businesses and governments worldwide to achieve carbon neutrality targets.
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