Electricity drew in more investment than fossil fuel supply for the first time last year as the energy industry prepared for electrification of everything from cars to buildings and industrial processes.
Power generation and electricity grid expansions took in $718 billion, 42 percent of the $1.7 trillion invested in energy last year, according to a report by the International Energy Agency released Tuesday. Oil, gas and coal supply by contrast reaped $708 billion, a drop from last year reflecting lower prices and profits by major oil companies.
The findings are another milestone marking a shift in the world energy industry away from the most polluting fuels as governments respond to the threat of global warming and the cost of renewables such as wind and solar power plunges to compete with fossil fuels.
“Oil and gas was the largest investment source for 100 years. This changed in 2016,” Laszlo Varro, chief economist of the IEA, said on a conference call. “With robust investment in renewable energy, increased investment into electricity networks, electricity is now the biggest area of capital investment.”
Renewable energy and networks made up 80 percent of all electricity investment, according to the IEA’s calculations. New clean power projects attracted $297 billion in 2016, a decline of 3 percent from the previous year, caused by cheaper solar panels and wind turbines. Installations rose by 5 percent during that period.
Energy projects are capital-intensive and take years to develop and construct, so decisions made and money spent today shine a light on what the energy system will look like in the decades to come. The shift of capital flows away from fossil fuels and towards electricity, particularly clean sources such as solar and wind, shows that the trend spurred by the Paris climate accord is seeping into the business of energy.
China received more than a fifth of global investment. The world’s most populous nation spent less on new coal-fired power stations as public pressure to limit smog reduced the appeal of the dirtiest fossil fuel. Companies spent their capital on low-carbon electricity generation and networks, making up 65 percent of the global total at $259 billion.
Investment into the U.S.’s energy system rose 16 percent, mostly driven by renewable energy, the report said. The IEA doesn’t anticipate a revival of the coal industry, even with President Donald Trump’s promise to bolster mining, because of market forces that started under the last Republican president, George W. Bush.
“The collapse of investor interest took place under the Bush administration when electricity demand started to slow down and shale gas started to emerge,” Varro said. “None of that changed, so we don’t see any investor appetite for new coal plants in the U.S.”
Europe’s offshore wind industry hit a record for investment decisions for new projects, rising to $20 billion for 5 gigawatts of capacity. That’s a 40 percent increase from the year before. Overall investment into the energy system in Europe declined by 10 percent as efficiency measures lowered demand. The region spent the most on efficiency globally, at $70 billion.
India’s spending on energy rose by 7 percent, as the government sought to extend its electricity grid and improve access. Investment into coal stations rose 10 percent to $20 billion. Capital flowing into clean energy generation added 9 percent to $10 billion, bolstered by Prime Minister Modi’s plan to reduce pollution in the nation that hosts at least 30 of the world’s dirtiest cities.
Electric vehicle sales grew 38 percent in 2016 worldwide and made up 10 percent of all transport efficiency spending. About $6 billion was spent on EV charging stations worldwide