Abstract

The International Energy Agency (IEA) has released a groundbreaking report revealing that transitioning to net-zero emissions will lower global energy costs compared to our current path. Clean technologies not only cut emissions but also enhance affordability. Today’s energy system is failing millions who lack access to clean cooking and electricity, with the poorest households spending up to 25% of their income on energy. The energy crisis, exacerbated by geopolitical tensions, has driven up costs, hitting low-income households hardest. Despite misconceptions, clean energy is the most affordable long-term option, though high upfront costs remain a barrier. Governments have introduced policies to mitigate these costs, yet support for clean energy is still dwarfed by fossil fuel subsidies. In 2024, global energy investment is set to exceed $3 trillion, with nearly two dollars going to clean energy for every dollar to fossil fuels. Solar PV leads this investment surge, projecting a record $500 billion. However, investment disparities persist, particularly in emerging economies. Achieving 2030 energy goals requires significant increases in renewable and efficiency investments. The IEA’s report underscores the need for substantial, targeted investments and policies to foster a cleaner, more affordable global energy system.

Introduction 

For as long as I am working in the energy sector there has always been a lot of discussions about the price of renewables and whether the shift from the traditional energy system to the decarbonized version will result in lower or higher costs. Of course this very much depends on who you ask but most of the time the conclusion tended to go towards that it would be more expensive. Adding all these intermittent renewables, removing carbon and strengthening the grid to allow for extensive electrification cannot but lead to higher costs, right? First cracks in this narrative started to appear when some technologies like wind and solar started to fall in costs dramatically. Followed by things like batteries which have also reduced in costs by 90%+ in a decade. But still changing the current system is viewed as expensive and in main stream discourse often seen as prohibitive in costs. But finally we have the answer to this question as a major report from the International Energy Agency (IEA) highlights that transitioning to net-zero emissions would actually result in lower global energy costs compared to maintaining our current trajectory. Scaling up clean technologies not only reduces emissions but also enhances affordability. This is a major breakthrough as people in the know have been saying this for years but finally a reputable agency like the IEA agrees with this as well!

The current energy crisis

Based on the report, today's energy system is failing to deliver affordable energy for all. Millions of people worldwide lack access to clean cooking facilities and electricity. In advanced economies, the poorest households spend up to 25% of their income on home energy bills and transport fuel. Things that are happening within the still dominant traditional fossil fuel based energy system. 

The instability of the current energy system is therefore evident. The energy crisis triggered by Russia cutting natural gas supplies to Europe has led to a 20% increase in global energy costs compared to previous years. Low-income households have been hit the hardest, struggling more than ever to pay their energy bills.

Misconceptions about clean energy

It's tempting, but incorrect, to assume that the transition to clean energy will increase energy costs. The IEA's analysis indicates that clean technologies are already the most affordable options for millions, particularly in the long term. However, high upfront costs remain a significant barrier.

Government policies and financial support

In recent years, many governments have introduced policies to help consumers manage these upfront costs through grants, tax breaks, and other financial support mechanisms. Despite these efforts, financial support for clean energy in 2023 was only about one-tenth of the value of subsidies for fossil fuels.

Investment in clean energy

Global energy investment is set to exceed $3 trillion in 2024, a new record led by the growth of clean energy. For every dollar going to fossil fuels today, almost two dollars are invested in clean energy. Solar energy is leading this transformation, with investment in solar PV expected to reach a record $500 billion in 2024—more than all other electricity generation sources combined.

Last year, global investment in renewable power and grids overtook spending on all fossil fuels for the first time, signaling the emergence of a new global energy economy. However, clean energy investment must grow much faster to align with global energy and climate goals. Achieving the key 2030 energy goals set at COP28 in Dubai requires a major increase in investment, including doubling investment in renewables, grids, and storage, and tripling spending to improve energy efficiency.

Emerging economies and investment disparities

Unfortunately, the shortfall in clean energy projects is most pronounced where they are needed most. Emerging and developing economies, which account for two-thirds of the global population, are receiving only about 15% of clean energy investment. Their share has been falling in recent years, highlighting a critical need for increased investment in these regions.

The role of oil and gas companies

Clean energy investment by oil and gas companies reached $30 billion in 2023, accounting for only 4% of the industry’s overall capital spending. This modest allocation highlights the slow pace of their transition to cleaner energy sources. Despite the urgent need to decarbonize, most capital expenditure in the oil and gas sector remains focused on traditional fossil fuel projects. The recent rebound in oil and gas investment, driven primarily by national oil companies (NOCs) in the Middle East and Asia, underscores this trend. Countries like Saudi Arabia and the United Arab Emirates are heavily invested in expanding their oil and gas sectors to meet domestic energy demands and maintain their global market positions, despite the growing global emphasis on clean energy.

This focus on fossil fuels indicates a potential misalignment with global climate goals. While some international oil companies (IOCs) have announced plans to reduce their carbon footprints and invest in renewable energy, the overall investment remains insufficient to address the climate challenge. To significantly impact global decarbonization efforts, oil and gas companies need to reallocate a larger share of their capital expenditure towards renewable energy sources, energy efficiency measures, and technologies such as carbon capture and storage (CCS). This requires adopting new business models that prioritize environmental sustainability, collaborating with governments to create supportive policy frameworks, and investing in cutting-edge clean energy technologies. Despite some progress, the current levels of commitment are inadequate, and more substantial investments in clean energy solutions are essential to drive the energy transition

Moving forward

To build a cleaner, more affordable, and secure energy system, substantial investment is necessary. This is particularly crucial in emerging economies, where investment in clean energy is lagging. Currently, 85% of clean energy investments are concentrated in advanced economies and China.

As energy transitions progress, "cents per kilowatt hour" may replace "dollars per barrel" as the benchmark for energy affordability. On a 1.5°C pathway, the share of oil in household energy spending is projected to fall from 50% today to 20% by 2035, while electricity's share will rise to 55%.

Conclusion

The future of global energy hinges on the rapid deployment and scaling up of clean technologies. With the right policies and investments, we can achieve a sustainable, affordable, and secure energy system that benefits everyone. Something the renewable energy sector has been working towards for decades but has finally be recognized by serious agencies like the IEA.