Record Investment In Renewables And Battery Storage Surges Amid Falling Costs And Market Challenges

Spending on renewables and batteries reached new highs in 2023, driven by falling costs for solar PV and batteries. Global investment in the power sector rose by 15%, hitting a record USD 1.3 trillion. Despite concerns over high interest rates and renewable profitability, lower solar PV module prices and rapid deployment in China, the EU, and the US spurred growth. Renewable investment reached USD 735 billion, with China alone spending USD 220 billion on solar PV. While renewable spending is expected to slow slightly to USD 770 billion in 2024 due to falling prices, the actual capacity added will not decrease.

Fossil fuel power investments fell by 10% to USD 90 billion, with further declines expected in 2024. Investment in electricity grids grew by 9%, reaching USD 375 billion, driven by advances in China, Latin America, and advanced economies. Battery storage investment also grew, hitting USD 40 billion.

Investment trends in emerging market developing economy (EMDE) regions showed an increase but still lagged behind advanced economies and China. In 2023, EMDE regions saw a record USD 270 billion in power sector investment, with renewable power representing half of this. India, Southeast Asia, Brazil, and Africa drove this growth through policy reforms and public tenders. Investment in grids also grew, with notable increases in Latin America. However, EMDE regions still face challenges, such as high capital costs for clean energy projects. Advanced economies saw declining wholesale electricity prices, creating uncertainty for renewable companies and highlighting the need for more grid and storage investment.

Solar PV and wind projects remained attractive for investors, with profitability improving for utility-scale renewables. Solar PV manufacturing investments doubled to USD 80 billion, while battery manufacturing reached USD 110 billion. However, the manufacturing sector faced challenges such as overcapacity and shrinking profit margins, especially for Chinese solar firms. Despite these challenges, clean technology manufacturing accounted for 4% of global GDP growth in 2023.

Wholesale electricity prices in Europe declined to their lowest levels since 2021, driven by lower natural gas prices and increased renewable output. This volatility created revenue uncertainties for renewable companies, emphasizing the need for coordinated renewable production, storage, and demand response. FIDs for unabated fossil fuel generation rose to 110 GW, largely driven by coal-fired capacity in China, despite a global decrease excluding China. Meanwhile, FIDs for utility-scale renewables hit a record USD 400 billion, driven by solar PV and a rebound in offshore wind.

Electrification efforts accelerated in advanced economies and Latin America, but EMDE regions outside China still need significant progress. Grid investment in advanced economies and China accounted for 80% of global spending, with the US and EU leading the way. EMDE regions saw varied investment patterns, with Latin America doubling its grid investments while Southeast Asia and Africa remained mostly unchanged.

Battery storage investment doubled in 2023, reaching over USD 40 billion, with significant growth in China, the US, and Europe. Despite high expectations for future capacity growth, investment spending is likely to moderate as capital costs continue to decrease.