Indulge me in a moment of sympathy for the International Energy Agency. 

Every year its expert staff produce some of the highest-quality research into our global market, package it up into a series of authoritative reports, and deliver them to us all – for free. Take the latest World Energy Investment Report 2023 as an example. Published last month, it contains 180 pages of detailed analysis which should be required reading for anyone in the energy game.

And we do all read it, cover to cover – right? 

Of course not. the media pick out one juicy headline – that investment in solar will overtake oil for the first time – everyone nods along happily, and the other 179 pages are banished to inbox archives the world over. 

It’s rather like getting the results of an annual health check-up. Your doctor optimistically hands you a folder full of opportunities to live a longer, happier life. You repay them by scanning the first page for “AM I DYING TODAY: YES/NO” and then fantasising about that extra glass of wine you’ll have for making it through another year.

I get it: we’re all too busy as it is, and the data just never stops coming. This is why I read the full IEA Report for you, and picked out some hidden gems buried beneath the headlines. 

So here is your primer on those deeper trends shaping energy markets for the years to come – glass of wine optional.

Green investment is up… but so is coal

Renewable power investment is indeed outpacing fossil fuel power investment by a record amount – with the latter roughly flat. In the context of the energy crisis and the lingering effects of the pandemic, this is cause for cautious optimism; the electrification and EV curve also promises a tailwind of positive feedback loops to come. The transition is real, and accelerating. 

However, investment in fossil fuel supply continues to grow, with oil, gas and even coal hitting multi-year highs. The climate only cares about absolute emissions, not relative market share; as long as we burn more carbon this year than last, renewable energy growth is moot. Emissions need to peak and fall precipitously, starting today – pulling ever more new carbon out of the ground only makes that harder to achieve. 

Despite the talk, Big Oil still isn’t joining the transition

The fossil majors made record profits last year out of the energy crisis. But only a tiny fraction of that cash is going back into clean energy investment, putting the lie to their claims to be funding the energy transformation. Instead, their mountains of cash are going back into conventional upstream investment (at a rate 20x higher than their green investments), and rewarding shareholders.

These shareholders should be careful what they wish for. Record profits have not gone unnoticed, from the White House down. This political moment needs to be seized through a reform of fossil fuel subsidies, which amount to a grotesque $5.9 trillion a year globally – orders of magnitude greater than subsidies for renewables. 

Institutional investors also need to wake up. Dividends and buybacks might flatter their portfolios today; but any responsible steward of money has to recognise that these companies are not offering a business model commensurate with being a long-term hold for a net-zero world. And no, CCUS won’t save them!

Renewables have been getting more expensive, not less

The 21st-century clean energy business narrative rested on a track record of ever-falling costs. In the last year or two this has reversed, with Solar PV costs up 20% over 2022, and wind turbines up 35% over 2020. 

This isn’t good news – but it’s also nothing special. Renewables have been caught in the same pandemic-induced supply-chain nightmare as everyone else, with commodities prices and shipping the prime culprits. I believe this will soon reverse as input costs normalise, which in turn will calm interest rates.

Beyond the macro, these figures disguise continued incremental efficiencies on the technological side. Solar will keep getting smarter, and turbines can keep getting bigger (but not by much). Floating wind is also a huge future opportunity which should bring numbers down. This isn’t Moore’s Law so much as the power of compounding marginal innovation – but it will show up again in the numbers in time. 

Battery supply is soaring – but are we inviting another geopolitical crisis?

Lithium-ion batteries remain the storage technology to beat, with 5 terawatts of new capacity due by the end of the decade. This is dominated by China, which hosts 75% of global manufacturing capacity. Without efforts at diversification, there is the risk of a future geopolitical upset creating another Ukraine-style supply-chain crisis - only this time it will hit clean energy rather than fossil fuels.

Uncle Sam’s IRA has attempted to kickstart this rebalancing in the US. The EU desperately needs something similar. One answer must surely be a focus on battery recycling, particularly as EV sales take off; the EU has a proposed minimum quota for recycled battery contents that will hit 70% by 2030. The environmental toll of mining these ‘clean energy’ inputs makes that a moral imperative as well as an economic one – and should give pause before we celebrate miners rising cap-ex figures too. Get it right, however, and the circular economy promises efficiency and resilience.