Power Sector Investment Reaches New Heights Amidst Renewable Energy Boom

In 2023, the power sector saw a significant boost in investment, increasing by 15% to reach USD 1.3 trillion. However, this growth is expected to slow down in 2024 due to cost reductions in renewable energy and a decline in fossil fuel investments. Despite falling costs for solar PV and batteries, spending on these technologies continues to rise, setting new records.

Renewable energy investments, including batteries, reached unprecedented levels, while investments in unabated fossil fuel power continued to decrease. Concerns over high interest rates and profitability for renewable companies were alleviated by lower solar PV module prices and rapid deployment in key economies such as China, the European Union, and the United States. Although growth is anticipated to continue in 2024, it will likely be at a slower pace.

In 2023, global spending on renewables hit a new record of USD 735 billion, driven mainly by solar PV and wind projects. China alone accounted for USD 220 billion in solar PV spending, almost half of the global total, thanks to falling module prices and pandemic recovery effects. The decline in prices is expected to slow the growth of spending on renewables in 2024, especially for distributed solar PV, with projections reaching USD 770 billion. This does not imply a reduction in added renewable power capacity; instead, lower prices allow for more capacity per dollar spent. However, issues such as grid and curtailment concerns, permitting delays, and land availability remain challenges.

Capital expenditures on fossil fuel power fell by 10% to USD 90 billion in 2023, with a similar decrease to USD 80 billion expected in 2024. Most of this reduction is due to declines in coal-fired power investments. Investments in fossil fuel power with carbon capture utilization and storage (CCUS) remained below USD 1 billion, primarily concentrated in China. Nuclear power investment remained stable in 2023, with an anticipated 20% growth in 2024 focused mainly on extending the lifetimes of existing plants rather than building new capacity. Hydropower investment slightly decreased and is expected to drop further in 2024.

Electricity grid investment grew to USD 375 billion in 2023, with notable progress in advanced economies, China, and Latin America. Battery storage investment aligned with expectations, reaching USD 40 billion. Final investment decisions (FIDs) for utility-scale renewables reached record highs, though FIDs for unabated coal-fired power plants also increased, particularly in China.

Investment in renewable power saw rapid growth, with significant momentum for spending on grids, nuclear, and battery storage expected in 2024. Emerging markets and developing economies (EMDE) are gradually attracting more investment, although not at the necessary scale, while advanced economies face uncertainties due to falling wholesale electricity prices.

Investment in power grids grew impressively in some regions but fell short in others. Advanced economies and China continue to lead grid investments, while EMDE regions outside China still lag. Concessional financing and public funding play crucial roles in these areas, highlighting the need for clear regulatory frameworks and private sector involvement.

Battery storage investment, a critical component for the energy transition, doubled again in 2023, driven by sharply declining costs. China, the United States, and Europe accounted for the majority of this investment. In contrast, EMDE regions outside China saw minimal investment in battery storage due to high capital costs and regulatory challenges.

To achieve the goal of tripling installed renewables capacity by 2030, annual investment in renewables, grids, and battery storage must increase significantly. Despite recent growth, more effort is required to meet climate and energy-access goals, especially in EMDE regions. Establishing clear regulatory frameworks, reducing risks, and mobilizing private capital are essential to closing the investment gap and supporting the global energy transition.