Oil refinery fire in Tehran/Facebook

Global clean energy, nuclear, grid, and energy efficiency investment will hold steady at US$2.2 trillion this year, while fossil fuel spending will tick up slightly from $1.1 to $1.2 trillion, the International Energy Agency (IEA) concludes in the latest edition of its annual World Energy Investment report.

The report, released May 28, presents a complicated, mixed view of shifting global energy investments in an era of deep geopolitical and economic uncertainty. The IEA projects that oil investment will fall for the third straight year despite higher prices, while gas investment reaches its highest level in a decade at $330 billion, driven to a 25-year high by demand from artificial intelligence. Renewable power investment will hit $665 billion, including $365 billion for solar, with low-emitting sources accounting for more than 70% of power sector investment.

The IEA declares a nuclear “resurgence” based on investments exceeding $80 billion for the year, with 78 gigawatts of new capacity under construction in 15 countries. Meanwhile, the cost of adding a gigawatt of new solar photovoltaics has fallen 80% in the last decade, supporting a nearly tenfold increase in annual capacity additions.

“The current energy crisis, stemming from the effective closure of the Strait of Hormuz, is changing risk perceptions and bolstering moves towards greater diversification,” the Paris-based agency said in a release. “Coming just a few years after the energy crisis centred around Russia’s invasion of Ukraine in 2022, today’s supply shock is expected to leave a lasting imprint on future investment priorities, particularly in Asia and the Middle East, where the impacts of the disruptions to shipping flows through the Strait of Hormuz have been felt most acutely.”

“We are in the midst of the largest energy security crisis the world has ever faced,” and “this will reshape investment strategies globally, with parallels to the major changes the energy world witnessed after the oil shocks of the 1970s,” said IEA Executive Director Fatih Birol. “We are already seeing intensified efforts by both producer and consumer countries to diversify trade routes and energy sources,” with countries advancing new pipelines and fossil infrastructure while emphasizing “domestically available resources”—including renewables, nuclear, coal, electrification, and energy efficiency.

The IEA reports that:

• The American/Israeli war on Iran, coming on the heels of the 2021-2023 energy crisis, is reinforcing the importance of energy security for decision-makers. “Confidence in the reliability of transit through the Strait of Hormuz has been profoundly shaken, and could remain fragile even once a resolution to the immediate conflict is reached,” the report states. “A renewed focus on resilience and diversification will be a widely-shared preoccupation in the wake of the crisis, both among energy exporters and importers.”

• Disruption in the Strait has already prompted a search for new fossil fuel supply routes, and the more than 30 fossil fuel facilities already damaged in the war will need capital spending for repairs.

• The war has also “triggered volatility within financial markets, slowing investment decisions in the short term and pushing up long-term financing costs.”

• Energy importing countries are focused on the energy resources available to them at home. “This creates upside for renewables, nuclear, and potentially also for coal,” the IEA writes. “Renewable energy resources are widely distributed around the world, and preliminary signs indicate that deployment is picking up in some markets heavily affected by the energy crisis,” including Asia and Africa.

“If it prompts a faster pace of electrification, the conflict will bring the Age of Electricity even more clearly into view,” with electrification already accounting for nearly 60% of global energy investment, at $1.6 trillion, or $2 trillion including end-use spending. Electric mobility is rising fast outside the countries where it’s already well established, while electricity supply investments “are now leaning towards grids and storage.”

The IEA notes that past energy shocks “have led to step-changes in policy attention to demand-side efficiency,” and that this year’s expected energy investments would have been twice as expensive if not for the last decade of cost reductions.

“The largest cost reductions over this period have been for renewable energy technologies, led by solar, and for batteries, which have dramatically brought down the price of electric mobility and of storage projects in the power sector,” the report states. “Costs for oil and gas developments have also declined, thanks to continued advances in drilling technologies and more use of standardized project designs,” while AI is expected to boost cost-efficiency across the energy sector.

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