What are we seeing in terms of actual investment dollars flowing into clean energy?

Global investment in clean energy continues to increase rapidly. It is surpassing investment in fossil fuels and is likely to increase by 2-3 times relative to 2023 levels by 2030. This will benefit the fundamentals of the industries and companies in the form of revenue growth and profit margins.

During 2023, investment in clean energy (excluding electric vehicles) increased approximately 8% year-over-year to over US$1.7 trillion, continuing a longer-term trend which has seen investment grow at a 6% compound annual growth rate since 2015. In contrast, roughly US$1 trillion was invested in conventional energy (excluding transportation) representing a decline rate of 3% per annum over the same timeframe.

The fact that global gross domestic product has grown at over 4% per annum during this period and the total energy investment was less than 2% (and there has been no meaningful improvement in energy efficiency) indicates that the world is under-investing in energy in all its forms.

We believe the root cause is a combination of:

• Increasing barriers to investing in fossil fuels
• Clean energy industries and supply chains remain relatively immature and, in most cases, growing from a small base

Macroeconomic uncertainty related to rising interest rates has compounded these issues over the last two years.

What are the consequences?

This dynamic is likely to result in energy prices continuing to rise in real terms in the medium-term. You will recall we have previously reported on this issue. Higher prices create a range of issues and opportunities. The issues: energy consumption (demand) is discouraged. That which cannot be avoided contributes to inflation (at a time when we are fighting inflation at above average levels). The opportunity: improved incentive economics (all else being equal) for investing in new energy capacity (supply). In a free market, high prices typically cure high prices.

What is the solution?

In circumstances where investment in clean energy is being incentivised and investment in fossil fuels is being made more difficult, we believe this stacks the outlook in favour of clean energy receiving more investment dollars.

The economically rational solution for the majority of consumers is to invest in distributed electricity generation (rooftop solar), energy storage (batteries) and electric vehicles to de-couple from the rising cost of energy.

Is this what we are seeing?

Yes. The response from governments, corporates and consumers globally is accelerating.

At country level, while there are some laggards (such as Japan which invested roughly half that of the United Kingdom and one-tenth of the United States), China is leading the world with around 40% of total investment, roughly equal to the US and Europe combined. The US is beginning to catch Europe, driven by the Inflation Reduction Act, which we have previously reported on.

Corporations entered into 46 gigawatts of power purchase agreements during 2023 (sufficient to power over 10 million average developed market households) an increase of over 30% year-over-year. So far 2024 remains on trend to achieve a similar growth rate.

Maybe most impressively (and most significantly albeit not the largest in absolute terms), in 2023, household spending on clean energy reached nearly US$200 billion (a greater than 300% increase on the prior year according to the World Economic Forum) indicating the consumer is stepping up. Ultimately, consumer appetite and behaviour has a positive feedback loop to commercial, industrial and government behaviours.

So, what is the outlook for clean energy? Follow the money

Our base case is that global investment in clean energy grows to US$4-5 trillion per year by the end of the decade, which is 2-3 times greater than 2023 levels. If we’re right about this, the fundamentals (in the form of revenue growth and profit margins) of the industries and companies from critical minerals to consumer products will benefit handsomely.