World Energy
Investment
2021

INTERNATIONAL ENERGYAGENCYThe IEA examines thefull spectrumof energy issues
including oil, gas andcoal supply anddemand, renewableenergy technologies,
electricity markets,energy efficiency,
access to energy,
demand side
management andmuch more. Throughits work, the IEA
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and sustainability ofenergy in its
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and beyond.

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Source: IEA. All rights
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IEA member
countries:

IEA association
countries:

Australia
Austria
Belgium
CanadaCzech Republic
Denmark
Estonia
FinlandFranceGermany
GreeceHungary
Ireland
Italy
Japan
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ThailandThe European
Commission also
participates in thework of the IEAWorld Energy Investment 2021

Abstract

Abstract
This year’s edition of the World Energy Investment report presents the latest data
and analysis of how energy investment flows are recovering from the shock of theCovid-19 pandemic, including full-year estimates of the outlook for 2021. It
examines how investors are assessing risks and opportunities across all areas offuel and electricity supply, efficiency and research and development, against a
backdrop of a recovery in global energy demand as well as strengthened pledges
from governments and the private sector to address climate change.

Whether the growing momentum among governments and investors to accelerateclean energy transitions is translating into an actual uptick in capital expenditures
on clean energy projects.

Whether the energy investment response to the economic crisis caused by the
Covid-19 pandemic will be broad-based or if some sectors, geographies andvulnerable parts of the world’s population will be left behind.

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IEA. All rights reserved.

The report focuses on two key questions:World Energy Investment 2021

Acknowledgement

Acknowledgements, contributors
and credits
This report was prepared by the Energy Investment Unit in the Energy Supply andInvestment Outlook (ESIO) Division of the Directorate of Sustainability,
Technology and Outlooks (STO). Michael Waldron was the lead author anddesigned and directed the report with Tim Gould, Head of Division for Energy
Supply and Investment Outlooks. Tanguy de Bienassis coordinated the report; heand Inchan Hwang authored the End-Use and Efficiency Section. Lucila Arboleya
and Pablo Gonzalez authored the Electricity section. Tim Gould and Becky Schulz
authored the Fuel Supply section; Pawel Olejarnik co-ordinated fossil-fuel supply
modelling. Simon Bennett authored the R&D and Innovation and Hydrogensections. Ryszard Pospiech co-ordinated modelling and data across sectors. Eleni
Tsoukala and Marie Fournier-S'Niehotta provided essential support.
The report benefited greatly from contributions from other experts within the IEA:
Carlos Fernandez Alvarez (coal), Adam Baylin-Stern (CCUS), Tae-Yoon Kim(refining and petrochemicals), Lilly Lee (Transport), Suzy Leprince (public R&D
funding), Jean-Baptiste Le Marois (corporate R&D and venture capital), Ariane
Millot (buidlings, renewables), Jeremy Moorhouse (biofuels), Yannick Monschauer(buildings efficiency), Leonardo Paoli (transport), Alison Pridmore (transport
efficiency), Paul Hughes (industry), Hugo Salamanca (industry efficiency),
Apostolos Petropolos (Transport), and Peter Zeniewski (LNG).
The report is indebted to the high calibre of advice, data and support provided byother colleagues in the IEA, including Thibault Abergel, Heymi Bahar, Alessandro
Blasi, Louis Chambeau, Davide D’Ambrosio, Chiara Delmastro, Araceli
Fernandez Pales, Marine Gorner, Ian Hamilton, Kevin Lane, Domenico Lattanzio,
José Miguel Bermudez Menedez, Nikita Patil, Amalia Pizarro, Tess Sokol-Sachs.
The report also benefited from valuable inputs, comments and feedback fromother experts within the IEA, including Mechthild Wörsdörfer (Director of
Sustainability, Technology and Outlooks), Keisuke Sadamori (Director of Energy
Markets and Security), Laura Cozzi (Chief Energy Modeller), Laszlo Varro (Chief
Economist), Peter Fraser, Timur Gül, Tom Howes, Randi Kristiansen and Brian
Motherway. Thanks also to Jad Mouawad, Astrid Dumond, Merve Erdem, Jethro
Mullen, Rob Stone and Therese Walsh of the Communications and Digital Office.

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IEA. All rights reserved.

Erin Crum edited the manuscript.

World Energy Investment 2021

Acknowledgement

Many experts from outside of the IEA provided input, commented on theunderlying analytical work, and reviewed the report. Their coments andsuggestions were of great value. They include:
Rigoberto Ariel Yepez-Garcia

Inter-American Development Bank

Manuel Baritaud

European Investment Bank

Thiago Barral

EPE-Brazil

Harmeet Bawa

Hitachi ABB Power Grids

Markus Becker

GE Power

Leila Benali

Apicorp

Kanika Chawla

Sustainable Energy for All (SEforALL)

Olivia Coldrey

Sustainable Energy for All (SEforALL)

Jonathan CoonyWorld Bank

Deirdre Cooper

Ninety-One

Adil Hanif

European

Bank

for

Reconstruction

andDevelopment (EBRD)David Hart

Information

Technology

andInnovation

Foundation
Donald Perry Kanak

Prudential Plc

Lahra Liberti

Organisation for Economic Co‐operation andDelphine Marchi

International Finance Corporation (IFC)

Espen Mehlum

World Economic Forum

Valerio Micale

Climate Policy Initiative

Baysa Naran

Climate Policy Initiative

Richard Norris

Pandreco Ltd

Ignacio Perez Arriaga

Massachusetts Institute of Technology

Andrea Pescatori

International Monetary Fund (IMF)Davide Puglielli

Enel

Lazeena Rahman

International Finance Corporation (IFC)

Justine Roche

World Economic Forum (WEF)

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IEA. All rights reserved.

Development (OECD)

World Energy Investment 2021

Acknowledgement

Gagan Sidhu

CEEW Centre for Energy FinanceGurdeep SinghNTPC Limited

Maria-Antonietta Solinas

Eni

Sandhya Srinivasan

World Bank

Jessica Stephens

Africa Minigrids Developers Association

Cecilia Tam

Organisation for Economic Co‐operation andDevelopment (OECD)

Wim Thomas

Independent

Akhilesh Tilotia

National Investment and Infrastructure Fund
(NIIF)David Victor

UC San Diego

Merte Villum Pedersen

UNEP DTU Partnership

Andrew Walker

Cheniere Marketing Ltd.

Kelvin Wong

DBS Bank

Peter Wood

Royal Dutch Shell

The work could not have been achieved without the support and co-operation
provided by many government bodies, organisations and companies worldwide,
notably: European Commission and European Union's Horizon 2020 research andinnovation programme funding under grant agreement No 952363; Ministry of
Economy, Trade and Industry, Japan; Ministry of Foreign Affairs, Japan; andMinistry of Economic Affairs and Climate Policy, Netherlands.
This publication has been produced with the financial assistance of the European
Union as part of the Clean Energy Transitions in Emerging Economies
programme. The Clean Energy Transitions in Emerging Economies programme
has received funding from the European Union’s Horizon 2020 research andinnovation programme under grant agreement No 952363. This publicationreflects the views of the IEA Secretariat but does not necessarily reflect those ofindividual IEA member countries or the European Union (EU). Neither the IEA nor
the EU make any representation or warranty, express or implied, in respect to the
publication’s contents (including its completeness or accuracy) and shall not be

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IEA. All rights reserved.

responsible for any use of, or reliance on, the publication.

World Energy Investment 2021

Executiive summary

Executive summary
Global energy investment is set to rebound by around
10% in 2021, reversing most of the drop caused by the
pandemic
In 2021, annual global energy investment is set to rise to USD 1.9 trillion,
rebounding nearly 10% from 2020 and bringing the total volume of investment
back towards pre-crisis levels. However, the composition has shifted towards
power and end-use sectors – and away from traditional fuel production.
Prospects for investment have improved markedly along with economic growth,
although there are significant country-by-country variations. Global energy
demand is set to increase by 4.6% in 2021, more than offsetting the 4%
contraction in 2020, according to the latest IEA estimates. While many energy
companies remain in a fragile financial state, there are signs developers are using
the window provided by accommodative monetary policy and government backing
to plan infrastructure developments and investments in new projects.

Billion USD (2019)

Global energy investment, 2017-2021

2 500

Buildings

2 000

Transport

1 500

Industry

1 000

Energyinfrastructure
Power generation

500

Fuel production
2017

2018

2019

2020

2021E
IEA. All rights reserved.

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IEA. All rights reserved.

Notes: Energy infrastructure includes midstream and downstream oil and gas infrastructure, electricity networks andbatteries.
Investment is measured as the ongoing capital spending in energy supply capacity (fuel production, power generation andenergy infrastructure) and energy end-use and efficiency sectors (buildings, transport and industry). The scope andmethodology for tracking energy investments is available in the methodology document.

World Energy Investment 2021

Executiive summary

The anticipated upswing in investments in 2021 is a mixture of a cyclical responseto recovery and a structural shift in capital flows towards cleaner technologies. But
despite an urgent need to shift to a more sustainable energy pathway, global
carbon dioxide (CO2) emissions are again on the rise, following the largest-everannual decline in 2020.

Electricity, led by buoyant spending on renewable
power, continues to take the largest share of overall
supply investment
After staying flat in 2020, global power sector investment is set to increase byaround 5% in 2021 to more than USD 820 billion. Renewables dominate
investment in new power generation and are expected to account for 70% of2021’s total of USD 530 billion spent on all new generation capacity. Investment
in grids and storage makes up the remainder. Thanks to rapid technology
improvements and costs reductions, a dollar spent on wind and solar photovoltaic(PV) deployment today results in four times more electricity than a dollar spent on
the same technologies ten years ago.

500
400
300
200

Upstream Mid/down- Coal supply
streamOil and gas

Lowcarbon
fuels

Fuel supply

Renewable Fossil fuel
power
power

Nuclear

2021E

2020

2019

2021E

2020

2019

2021E

2020

2019

2021E

2020

2019

2021E

2020

2019

2021E

2020

2019

2021E

2020

2019

2021E

2020

100
2019

Electricity
networks
and battery
storage

Electricity
IEA. All rights reserved.

Renewable investment has thrived in markets with well-established supply chains
where lower costs are accompanied by regulatory frameworks that provide cash
flow visibility – and where lenders and financiers that understand these sectors
well are seeking sustainable projects to support. Demand from the corporate
sector for clean electricity to meet sustainability targets has also played a role.

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IEA. All rights reserved.

Billion USD (2019)

Global energy supply investment by sector

World Energy Investment 2021

Executiive summary

Much of the spending resilience in 2020 was concentrated in a handful of markets,
most notably the People’s Republic of China (hereafter, “China”), which saw aremarkable year for wind power investment, as well as the United States andEurope. For the fifth consecutive year, capital spending in the power sector in 2020
was higher than for oil and gas supply.
Electrification was also a major driver of investment spending by final consumers.
Electric vehicle sales continue to surge along with a proliferation of new model
offerings by automakers, supported by fuel economy targets and zero-emissionsvehicle mandates.

Policies remain a crucial driver for many energy
investments, with the impact of recovery plans becoming
visible in some countries
In economies where governments have more fiscal space and are able to borrowat low rates, recovery strategies offer a major opportunity to boost investment ininfrastructure, efficiency and clean energy technologies. In the case of
infrastructure, after declining for the fourth consecutive year in 2020, spending onelectricity grids is expected to rise in 2021, led by China and Europe. Proposed
infrastructure spending in the United States, if approved, would add to thismomentum.
Spending on energy efficiency improvements is set to increase in 2021 by nearly
10% in response to renewed economic growth and initial effects of recovery
programmes. However, against a backdrop of relatively low fuel prices, growth isheavily concentrated in markets and sectors with clear government policies, suchas the buildings sector in Europe. Policies and stimulus spending are spurring
projects in new areas such as low-carbon hydrogen and carbon capture utilisationand storage (CCUS).
Yet despite these encouraging signs, stimulus spending on clean energy
technologies is falling well short of what is needed to ensure a sustainable
recovery from the Covid-19 crisis. Many developing countries lack the means topursue expansive recovery strategies, and early signs of inflation in some
economies has led to questions about how long the current environment of low

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interest rates will last.

World Energy Investment 2021

Executiive summary

Momentum from net zero pledges and sustainablefinance is yet to translate into large increases in actual
spending on clean energy projects
Over the last year, there has been a proliferation of commitments by governments,
companies and financial institutions to achieve net zero emissions by 2050 or soon
thereafter. The financial community in many advanced economies has rallied
around sustainable finance, launching funds and initiatives to channel growing
appetite from capital markets and to comply with new disclosure rules. Sustainabledebt issuance 1 has risen rapidly, reaching a record USD 600 billion in 2020, andthe mainstreaming of green bonds is increasingly accompanied by new types of
securities and performance-based instruments to support more complex
transitions.
Clean energy companies have performed well on financial markets, withrenewable power companies outperforming both listed fossil fuel companies andpublic equity market indices in recent years, and with lower volatility. Valuations
remain high after a particularly strong run-up in prices in the second half of 2020,
even though there was some pullback in early 2021.
Even if spending on clean energy is set to rise in 2021 by around 7%,
financial flows have grown more rapidly than actual capital expenditures.
There is a shortage of high-quality clean energy projects. This is compounded
by inadequate channels to guide available funds in the right direction and a lackof intermediaries capable of matching surplus capital with the sustainability
needs of companies and consumers.

Clean energy investment is on a moderate upswing, but
remains far short of what will be required to avoid severe
impacts from climate change
The USD 750 billion that is expected to be spent on clean energy technologies
and efficiency worldwide in 2021 remains far below what is required in climatedriven scenarios. Clean energy investment would need to double in the 2020s tomaintain temperatures well below a 2°C rise and more than triple in order to keep
the door open for a 1.5°C stabilisation. Moving to a climate-aligned energy
pathway hinges on a broad range of government actions, including attention to thefinancial architecture that can accelerate direct investments in market-readysolutions and promote innovation in early-stage technologies. As emphasised in

Excluding social bonds.

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1World Energy Investment 2021

Executiive summary

the new IEA Roadmap to Net Zero by 2050, policies need to drive a historic surge
in clean energy investment this decade.

Billion USD (2019)

Global investment in clean energy and energy efficiency, 2017-2021

800

45%
40%

600

CCUS
Low-carbon fuels
Renewables for end-use

35%
400
30%
200

25%

Energy efficiency andelectrification
Battery storage
NuclearRenewable power

2017

2018

2019

2020

2021E

20%

% clean energy in total(right axis)
IEA. All rights reserved.

Clear policy signals from government would not only reduce uncertainties
associated with clean energy but also avoid potential costs from investing inassets that risk being underutilised or stranded. Mismatches in the speed ofadjustment can create risks, for example, if a slow pace of grid investment leads
to bottlenecks for wind and solar PV, or if oil and gas suppliers transition awayfrom hydrocarbons faster than do their consumers. As financial regulators work toalign capital flows with climate goals, slower progress in the real economy canlead investors to over-value some sectors while penalising others, creating avolatile ride along the way.

The gap between today’s investment trends and asustainable pathway is larger in emerging market anddeveloping economies
In contrast to advanced economies and China, investment in emerging market
and developing economies (EMDEs) is set to remain below pre-crisis levels in
2021, in large part because their twin public health and economic crises are more
prolonged. EMDEs outside China account for nearly two-thirds of the global
population but only one-third of global energy investment and just one-fifth of clean

PAGE | 10

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energy investment.

World Energy Investment 2021

Executiive summary

These EMDEs need to achieve a large increase in investment from a starting pointof less fiscal space and more constrained access to sources of finance thanadvanced economies. Financial pressures on utilities and other major investment
players in EMDEs have been exacerbated by the pandemic, which has also
resulted in setbacks in the drive to expand access to modern energy. This is amajor fault line in global energy transitions, which we will examine in detail in a
major new IEA special report, entitled Financing Clean Energy Transitions in
Emerging Market and Developing Economies. 2

The balance of investment in fossil fuels is shifting
towards state-owned companies
Upstream oil and gas investment is expected to rise by about 10% in 2021 ascompanies recover financially from the shock of 2020, but spending remains well
below pre-crisis levels. Firmer demand and higher oil and gas prices have led todiverging investment strategies. Cost control remains a common theme, but somemajor national oil companies are looking to invest counter-cyclically to gain market
share. Qatar’s decision to move ahead with the world’s largest liquefied naturalgas (LNG) expansion, and to include carbon capture in its development plans, isa strong statement of intent to maintain a leadership position in LNG.
There are strong pressures on private companies to keep oil and gas portfolios incheck. Despite higher prices, the major oil companies are holding aggregate oiland gas spending flat in 2021, and their share of overall upstream spending is now
at 25%, compared with nearly 40% in the mid-2010s. The shale sector is, for the
moment, sticking to its newfound commitment to capital discipline, using higher
revenues in 2021 to pay down debt and return money to shareholders rather thanto increase output.
The predominance of state-owned companies is also visible in coal supply, withinvestment dynamics largely determined by what happens in China and India. In
China, the policy priority is to modernise the sector by shutting down small,inefficient mines and investing instead in large, fully mechanised mines. In India,
the main driver behind domestic investment is to reduce coal imports.
Overall, the overwhelming bulk of fuel supply investment in 2020 went into fossil
fuels – 84% to oil and gas and 14.5% to coal (which is a much less capitalintensive sector). Around 1.3% was spent on low-carbon fuels. Today’s

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2
This report is being produced by the IEA in collaboration with the World Bank and the World Economic Forum, for launch
on 9 June 2021.

World Energy Investment 2021

Executiive summary

investment spending on fuels appears caught between two worlds: neither strong
enough to satisfy current fossil fuel consumption trends nor diversified enough tomeet tomorrow’s clean energy goals.

An uptick in investment decisions for new coal-fired
power plants underscores that coal is down, but not out
The rising share of renewables in new power generation investment has beenaccompanied by a sharp drop in approvals for new coal-fired power plants, which
are some 80% below where they were five years ago. However, there was a slightincrease in go-aheads for new coal-fired projects in 2020. This was largely due toChina, where the government lowered restrictions on building new plants, givinga green light for construction in more provinces. Cambodia, Indonesia andPakistan were other countries where coal-fired final investment decisions (FIDs)
picked up in 2020. Those three countries together approved almost 5 gigawatts(GW) of new coal capacity in total. In India, the amount approved dropped below
1 GW, its lowest level in a decade.
China’s coal-fired FIDs in 2020 were about 25% their 2010 level, India’s less than
5%. FIDs for gas-fired power plants edged down globally in 2020 but were still
more than double those of coal (50 GW versus 20 GW). A large reduction in FIDs
for new gas-fired capacity in the United States more than offset growth in parts ofAsia (outside China and India).

From a low base, investments by the oil and gas industry
in clean energy technologies are starting to pick up.
Oil and gas companies are coming under increasing pressure to adapt theirinvestment strategies to the needs of clean energy transitions. This takes different
forms, including commitments to reduce emissions resulting from oil and gas
supply or to invest into new areas such as clean electricity or sustainable fuels.
In 2020, clean energy investments by the oil and gas industry accounted for onlyaround 1% of total capital expenditure. However, our tracking suggests thatcommitments to diversify investment, led by large European companies, arealready starting to have an impact. If performance so far in 2021 is maintained forthe full year, the share of capital investment by the oil and gas industry going toclean energy investments could rise to more than 4% in 2021. Project financing
for offshore wind – closely aligned with industry strengths – was considerably

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higher in the first quarter of 2021 than in the whole of 2020.

World Energy Investment 2021

Executiive summary

Support for innovation is a key pillar of net zero plans,
but 2020 saw diverging trends between government andcorporate spending on energy research & development
Public spending on energy research & development (R&D) continued to rise in2020, with the share of low-carbon technologies in the total rising to 80%.
However, energy R&D spending by the private sector dropped by around 2% as
the pandemic caused cuts to corporate budgets. Governments have a key role toplay in ensuring that the world’s capacity to bring new technologies to market is
not disrupted by the pandemic.
The signals for investment in low-carbon energy innovation in early 2021 arebroadly positive. Major economies have highlighted innovation and increased
funding as part of their drive to net-zero emissions. In total, we estimate thatthrough 2030, over USD 50 billion of public funds could be available for major
demonstration projects for large-scale low-carbon energy technologies, including
CCUS and other ways to mitigate industrial emissions. Another source of optimismis the observed resilience in 2020 of early-stage venture capital funding for low-

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carbon energy technologies.

World Energy Investment 2021

Electricity

Electricity
Overview
Investment in the global electricity sector is expected to increase by around 5% in
2021. The pandemic flattened investment in this sector in 2020, as the resilienceof spending on renewables compensated for drops in electricity grids and larger
reductions in fossil fuel generation. The resumption of growth in electricity
spending is a reflection of the central role of electricity in development strategies
and energy transitions, alongside expectations of improvements in the economy
and in the overall public health situation.

Billion USD (2019)

Global investment in the power sector by technology, 2011-2021E

1 000

100%

800

80%

Battery storage
Electricity networks
Nuclear

600

60%

400

40%

Renewable power

20%

EMDEs (share,right axis)

200

2011-15 2016

2017

2018

2019

2020

Fossil fuel power

2021E
IEA. All rights reserved.

Note: EMDEs = Emerging Market and Developing Economies, excluding China.

China and the United States continue to attract about half of global power sector
investment, both showing positive investment growth in 2020 despite thepandemic. This was driven by a large increase in spending on renewables projects– especially wind – in advance of a withdrawal of the previous subsidy regime in
China, and a deadline for eligibility for tax credits in the United States. After arecord year, investments in renewables could fall in China in 2021 (though they
are likely to stay at levels well above 2019), despite the country’s announced 2060
carbon-neutrality target. New support for clean energy investment in the United

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IEA. All rights reserved.

States includes both financial aspects as well as permitting and regulatory

World Energy Investment 2021

Electricity

changes, which are likely to spur increased investment in 2021 and beyond.
Investment in Europe’s power system was also relatively resilient through the
pandemic, and is likely to grow in 2021, led by higher spending on renewables,
especially as disbursements of the European Union (EU) Green Recovery
package kick in during the second half of 2021 and beyond.
However, the overall state of play in EMDEs (excluding China) is less upbeat.
Power sector investment in EMDEs was more affected by the pandemic and theeconomic downturn in 2020, down by 10% compared with the previous year. The
anticipated recovery is not enough to bring spending back to pre pandemic levels,in large part because the twin public health and economic crises are more
prolonged. EMDEs account for nearly two-thirds of the global population but forless than one-third of power sector spending. Market uncertainty, lockdowns andreduced revenues fed into lower spending outlays on new projects, especially in
India, the Middle East and North Africa, and Southeast Asia. Despite the 2021
increase, trends in EMDEs remain well out of step with the massive scale-up in
investment required in these countries to meet sustainable development goals.

Electricity generation
Investment in renewables was remarkably robust in 2020and continues to dominate spending on new generation
Renewables are dominating inflows of capital to new power generation capacity,and these investments remained robust in 2020 given the disruption caused by
Covid-19. The share of renewables in total power sector spending (including
network infrastructure) was above 45% in 2020. A further increase in renewableinvestment is expected in 2021 as economies recover.
Capital expenditures for renewables increased by around 7% in 2020 comparedwith 2019, despite capital costs continuing on a downward trend. For example,
utility-scale solar PV installation costs decreased by 10% in 2020 while onshore
wind decreased by 5%, on a global average basis. Overall, a dollar spent on windand solar PV deployment in 2020 is associated with four times more output thana dollar spent on the same technologies ten years earlier, because of technology

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improvements and reduced costs.

World Energy Investment 2021

Electricity

600

Investment spending
TWh

Billion USD (2019)

Investment in solar PV and wind power and its expected generation output, 2010-2020

500

600
500

400

400

300

300

200

200

100

100
2010

2015

Solar PV

Output from new capacity

2020

2010

Wind: onshore

2015

2020

Wind: offshore
IEA. All rights reserved.

Source: IEA calculations with capital cost data from IRENA (2021) and capacity factors from IRENA (2019).

The 45% increase in renewable deployment in 2020 was largely due to a record
year for wind power installations. Wind capacity almost doubled compared to2019, to 114 GW, while solar PV also expanded by almost a quarter, reachingalmost 135 GW. An astonishing 70 GW of new wind power capacity was brought
online in China, while the United States followed in second place, connecting morethan 15 GW of onshore wind.
There was a negative shock to renewable investments in many EMDEs in 2020
but there were also some exceptions. Viet Nam, for example, managed the crisis
remarkably well while continuing to attract capital to renewables: the phase out offeed-in tariffs (FITs) for solar PV projects resulted in a drop in utility-scale
investment, but distributed PV drove a continued boom in 2020, with over 9 GWof rooftop solar installed.
Investments in renewables are set to continue growing in 2021, consolidating therecord growth of 2020 albeit at a slightly slower rate. Renewables are central toachieving enhanced emissions targets, including net-zero pledges, announced bycountries and companies around the world. Costs and capacity factors for key
technologies continue to improve, especially for solar PV that reached new record
lows in various tenders and auctions across the world during 2020 and the
beginning of 2021. This included around USD 13 per megawatt-hour (MWh) in a
700 megawatt (MW) auction in Portugal in August 2020 (PV Magazine, 2020),
followed by a record low of just over USD 10/MWh announced in Saudi Arabia in

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early 2021 for a 600 MW project (Taiyang, 2021). In addition, the stocks ofWorld Energy Investment 2021

Electricity

renewable players have also done well, helped by expansive monetary policy anda generally positive market sentiment towards low-carbon assets.
Solar PV – rather than wind – is set to lead the growth in renewables spending in
2021, given its competitiveness and the existing pipeline of projects committed intenders,

auctions and corporate powerpurchase agreements(PPAs).

Investments in solar PV are anticipated to grow by more than 10% in China, India,
the United States and Europe. This growth stems not only from the commissioningof utility-scale solar PV projects, but also from an uptick in investments indistributed solar PV facilitated by improving economic and public healthconditions.
While net-zero strategies and low financing costs set a very positive context for
renewable generation in advanced economies, permits and licences could hindersome of this momentum, especially for onshore wind. These factors are starting
to represent a bottleneck in Europe, where permits take long to obtain anddecisions are at times challenged in court (Wind Europe, 2021). Under
subscription was also a problem in wind auctions in Germany. This is also true inmany EMDEs, on top of land- and grid-related issues. In India, wind auctions wereat a standstill in the first half of 2020 and 60% of the capacity auctioned in thesecond half was not allocated.
These constraints are less visible in relation to investment in offshore wind, whichis expected to continue to show strong growth, given rising policy support inEurope and around the world. There are strong expectations of low prices for new
offshore wind tenders in Germany, Japan, the United Kingdom and theUnited States. In May 2021, the US authorities gave the green light for theconstruction and operation of the 800 MW Vineyard Wind project off
Massachusetts, the country’s first large-scale offshore wind project.
Nuclear power, which represents around 5% of total global investment, was alsoquite resilient in 2020 and is set to increase in countries with well-defined nuclear
expansion plans such as China, India and the Russian Federation (hereafter,“Russia”). China, for example, commissioned 2 GW in 2020, but started
construction of 3 GW, about three times more than in 2019, and has plans to build
more nuclear plants in the coming years to align with its 2060 target for carbon
neutrality.
Investment in fossil-based generation decreased considerably in 2020, by morethan 10%, given lower demand and electricity prices, although there were notabledifferences between countries and regions. Around a third of the 2020 drop came

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from India, driven by lower spending in coal-fired plants, disruptions caused byWorld Energy Investment 2021

Electricity

lockdowns and lower electricity demand. In the United States, investment
increased, stemming from an uptick in investment in gas-fired plants, as firm
capacity becomes scarcer given the continued penetration of variable renewables
and the continuation of coal retirements (around 10 GW in 2020). Spending on US
fossil-fired plants is anticipated to rise in 2021. In China, investment in fossil fuelgeneration declined in 2020 and is expected to do so again in 2021, although the
reduction in 2021 is at a much lower rate than in previous years, consistent with
our findings on project approvals.

Final investment decisions for dispatchable
power
An uptick in investment decisions of coal-fired power in2020 shows that, while coal is well down, it is not out
In addition to our estimates of today’s investment flows to different parts of theenergy sector, i.e. current annual capital spending, our tracking of projects thatreach financial close or begin construction provides an additional forward-looking
indicator of future activity. These FIDs for large-scale dispatchable powerincreased in 2020 to almost 95 GW.
This includes an uptick in FIDs for coal-fired power, which reached 20 GW in 2020,
the first increase since 2015. Even though these FIDs are now 80% below where
they were five years ago, this is nonetheless a reminder that energy transitions do
not follow a simple storyline. The increase came largely from China, with a 45%
increase compared with 2019, reaching almost 13 GW Nearly three times morecapacity obtained approvals for construction.This came after the government
lowered restrictions on building new plants, giving a green light for construction in
more provinces. Cambodia, Indonesia and Pakistan were other countries wherecoal-fired FIDs picked up in 2020, approving almost 5 GW in total, while they
dropped in India to less than 1 GW, the lowest level of the decade. China’s coalfired FIDs in 2020 were a quarter of where they were in 2010, India’s less than5%.
A considerable amount of coal is still included in power expansion plans acrossseveral Asian countries, even in countries that are also pushing strongly forrenewables. Viet Nam is a good example, in that it is targeting almost 130 GW ofrenewable capacity by 2045 while also more than doubling its anticipated coalfired capacity over the same period, according to the latest national power

PAGE | 18

IEA. All rights reserved.

development plan draft .

World Energy Investment 2021

Electricity

India

Southeast Asia

MENA

2020

2015

United States

2019

20
2018

20

2016

40

2020

40

2019

60

2018

60

2017

80

2016

80

China

Gas-fired

100

2017

Coal-fired

100

2015

GW

FIDs for coal and gas, 2015-2020 (GW)Rest of world
IEA. All rights reserved.

Note: MENA = Middle East and North Africa.
Source: IEA calculations based on McCoy (2021).

Investment decisions for gas-fired plants edged down in 2020, largely due to aconsiderable reduction in FIDs in the United States, which more than offset growthin Asia (outside China and India). FIDs for the largest sources of low-carbon
dispatchable generation – hydropower and nuclear – were more than 20 GW, 40%
higher than the previous year, driven by FIDs of hydro power in India, to provide
balancing for increased shares of variable renewable generation.

Grids and storage
The decline in grid investment is likely to be reversed in
2021 with rising infrastructure spending in Europe andChina – and major plans announced in the United States
After declining for the fourth consecutive year in 2020, spending on electricity grids
is expected to go up substantially in 2021. Most of the 2020 decline stemmed froma reduction in China and several EMDEs, which more than outweighed increases
in the United States and Europe. In China, the majority of the drop came in the
distribution sector, as targets for rural power grid expansion had been met andfocus shifted to transmission, which represents a smaller share of gridinvestments. However, there are large expansion plans expected for 2021 –PAGE | 19

IEA. All rights reserved.

especially in China and Europe – which are set likely change this trend. In Europe,World Energy Investment 2021

Electricity

for example, the 2021-30 grid expansion plans provide the foundation forincreased investment, supported by the recovery plans.

100

50

50

United States
EuropeChina
Rest of the world

India

Distribution

2021E

100

2020

150

2019

150

2018

200

2017

200

2016

250

2021E

250

2020

300

2019

300

2018

350

2017

350

2016

Billion USD (2019)

Investment in grids by geography and segment, 2016-2021E

Transmission
IEA. All rights reserved.

Note: Investment in electricity networks is calculated as capital spending for installed lines, associated equipment andrefurbishments.

In the United States, the proposed American Jobs Plan includes measures to build
a more resilient electricity transmission system as part of the drive for carbon-freeelectricity by 2035. This includes the creation of a targeted investment tax credit
and efforts to better leverage existing rights-of-way along roads and railways forhigh-voltage lines. These kinds of measures underline the broader importance ofpolicies and regulation in faciltating network investments, by incentivisingconnections to the grid, especially for new wind and solar projects; simplifying
procedures to make public land available for electricity infrastructure; speeding up
response times; or rethinking authorisation procedures for minor categories ofprojects.
Despite the pandemic, investment in battery storage increased by almost 40% in
2020, to USD 5.5 billion. Given the strong momentum of the sector and the big
pipeline of projects, this trend is set to continue over 2021. Spending on grid-scalebatteries rose by more than 60%, driven by the push for renewables investment
and growing presence of hybrid auctions with storage. Average costs continued
to reduce substantially, by an average 20%. This also helped drive the impressive
resilience of grid-scale batteries, especially in the United States and China – which

PAGE | 20

IEA. All rights reserved.

installed over 1 GW – followed by Korea and Europe.

World Energy Investment 2021

Electricity

On the other hand, investments in behind-the-meter storage decreased by 12%,as these assets are generally financed by households and small and medium
companies that were generally more affected by the Covid-19 pandemic.
Nonetheless, behind-the-meter storage is expected to pick up again in 2021 as
the global economy improves.

Billion USD (2019)

Battery storage investment, 2014-2021E

5

Grid-scale battery storage

Behind-the-meter battery storage

Rest of the world
Middle East

4

China

3

Korea
Japan

2

Australia

1

Europe
2021E

2020

2019

2018

2017

2016

2015

2014

2021E

2020

2019

2018

2017

2016

2015

2014

United States

IEA. All rights reserved.
Source: IEA calculations based on Clean Horizon (2021), BNEF (2021), China Energy Storage Alliance (2021).

Implications
Electricity investment is still a long way short of what isneeded for a cleaner and more electrified energy future
The headline numbers for investment in electricity show some positive signs,
notably the resilience in 2020 and the prospective increase in 2021. However,analysis of some of the details – and a comparison with what would be requiredin climate-driven scenarios – present a much more sobering picture. The world isa long way short of the path that needs to be followed to avoid severe impacts
from climate change. The slight increase in FIDs of new coal-fired plants in 2020

PAGE | 21

IEA. All rights reserved.

shows that not all indicators are pointing in the right direction.

World Energy Investment 2021

Electricity

Billion USD (2019)

Global investment in the electricity sector compared with annual average investment
needs, 2025-2030, by scenario

2 500

Battery storage
Fossil fuels with CCUS

2 000

Electricity networks

1 500

Nuclear

1 000

Fossil fuels without CCUS

500

Renewable power
2011- 2016- 2021E
15
20

STEPS

SDS
NZE
2026-30
IEA. All rights reserved.

Note: STEPS = Stated Policies Scenario, SDS = Sustainable Development Scenario, NZE = Net Zero Emissions by 2050.

In advanced economies and in China, the availability of money for power sector
investments does not appear to be a binding constraint – there is strong
competition for high-quality investment opportunities against a backdrop of low
lending rates and pressure to increase exposure to clean energy. However, theflow of projects is often intermittent, due to time-limited subsidy programmes orother administrative and permitting constraints. Improving the certitude and clarity
of investment frameworks will be key to unlocking private capital at scale formature technologies such as wind and solar PV.
At the same time, policy makers need to ensure that the pace of change on thegeneration side is matched by investment in robust energy grids, storage and allforms of flexibility: the priority attached to infrastructure in recovery strategies is apositive signal in that regard.
By contrast, the signals from many EMDEs are a source of much greater concern.
With few exceptions, the downside risks to investment from the pandemic are
more substantial, the risks facing new clean electricity and infrastructure
investments are higher, and sources of finance more constrained. This topic is
examined in much more detail in forthcoming IEA analysis, entitled Financing

PAGE | 22

IEA. All rights reserved.

Clean Energy Transitions in Emerging Market and Developing Economies.

World Energy Investment 2021

Fuel supply

Fuel supply
Overview
After a precipitous fall in 2020 of more than 25%, total fuel supply investment is
expected to rebound by about 14% from just over USD 620 billion to nearly
USD 710 billion in 2021. The vast majority of fuel supply investment in 2020 went
into fossil fuels – around 84% to oil and gas and just over 14.5% to coal (which isa much less capital-intensive sector). Only around 1.3% was spent on low-carbon
fuels. However, as we explore later in this section, companies – including in theoil and gas industry – are starting to allocate more capital spending to projects in
low-carbon fuels and CCUS; this is set to have a tangible influence on future
investment trends.

Oil and gas upstream
Upstream spending set to rise in 2021, but the oil andgas industry remains under strong pressure from thepandemic and from energy transitions
The oil and gas industry has never seen a year like 2020, and the reverberations
are still being felt in the finances and strategies of companies across the sector.
After a sharp decline in 2020, our bottom-up analysis of publicly announced oil
and gas company spending plans shows an 8% increase in upstream spending in
2021, taking the total spending to over USD 350 billion, but this remains well below

PAGE | 23

IEA. All rights reserved.

2019 levels.

World Energy Investment 2021

Fuel supply

Upstream spending by selected company, 2020-2021E

MajorsExxonMobil  25%
Shell  3%
Chevron  4%
Total  14%
BP  8%Eni  22%
ConocoPhillips  5%
Petrochina  3%
Saudi Aramco  30%
Petrobras  40%
Equinor  14%

National oil companies

Independents

EOG Resources  3%
Suncor Energy  0%
Occidental  18%
Repsol  27%
Continental  17%
Hess  0%
10
2020

20
2021E

30
Billion USD (2019)
IEA. All rights reserved.

Source: IEA calculations based on company reporting.

Prices and revenues have been higher in the first quarter of 2021, but it is far fromcertain that this will trigger additional upstream spending. Companies face multiple
dilemmas as they put together their spending plans. Demand uncertainties related
to the pandemic and the speed of energy transitions are accompanied on the
supply side by the large spare capacity held by countries in the OPEC+ 3 grouping,and questions over the pace at which OPEC+ supply cuts will be unwound.
There are variations among companies but, in aggregate, the Majors are holding
a conservative line on upstream capital spending plans: these are essentially flatcompared with 2020 (-2%). Continued investor pressure to diversify into lowcarbon energy underpins more modest spending programmes, which are also
aimed at reducing debt and supporting dividend payments (see discussion below

OPEC+ comprises the members of the Organization of the Petroleum Exporting Countries as well as Azerbaijan, Bahrain,
Brunei, Kazakhstan, Malaysia, Mexico, Oman, the Russian Federation, South Sudan and Sudan.

PAGE | 24

IEA. All rights reserved.

3

World Energy Investment 2021

Fuel supply

on the industry in transition). Upstream spending by the Majors as a group has
traditionally been well above the levels from their peers in the Middle East, Russia
and China; this is no longer the case.

Billion USD (2019)

Upstream spending by selected company types

160

Majors140
120

ChineseNOCs

100

Russiancompanies

80

Middle East
NOCs

60
40
20
2015

2016

2017

2018

2019

2020

2021E
IEA. All rights reserved.

Source: IEA calculations based on company reporting.

The shale sector is another crucial bellwether for investment trends and market
balances. After another round of belt-tightening in 2020, shale players face theunfamiliar prospect of generating significant free cash flow in 2021. For the
moment, the industry is using the influx of cash to pay down debt and return money
to shareholders, rather than increase output. Investors have welcomed thiscommitment to capital discipline. However, if or when a leaner and more profitablesector starts to regain the confidence of capital markets, priorities could swing
again back towards growth.
Caution remains the watchword also for the exploration sector, which slumped
already in the 2010s as companies turned to shale (which does not require
exploration in the usual sense). Exploration activity is sharply down in most partsof the world, with the main pocket of activity outside of the Middle East being in
offshore Brazil, Guyana and Suriname.
The overall expectation is that upstream investment by National Oil Companies(NOCs) increases by around 10% in 2021, but this average figure masks a rangeof spending plans, strategies and financial pressures. While many NOCs still face
severe revenue and spending constraints, some are stepping up countercyclical

PAGE | 25

IEA. All rights reserved.

investments. China’s NOCs – PetroChina, China National Offshore OilWorld Energy Investment 2021

Fuel supply

Corporation (CNOOC) and Sinopec – have announced large capital budgets for
2021, with PetroChina having the largest upstream programme of any company.
Some large players in the Middle East are also in expansion mode, with Saudi
Aramco and Abu Dhabi National Oil Company (ADNOC) both charged withincreasing production capacity by around 1 mb/d in the coming years. ADNOC
announced a USD 120 billion spending programme for 2021-25 with this in mind.
Saudi Aramco plans total capital expenditures of USD 35 billion in 2021 (versus
USD 27 billion in 2020); although the need to keep revenue flowing to the state
during the crisis has pushed up the company’s borrowing, taking on an extra
USD 90 billion in debt in 2020.

Refining
Pressure to consolidate and retool for a new age is
growing in the refining sector
The refining industry had an extremely challenging year in 2020 with the collapse
in oil demand. Estimated refining investment (greenfield and upgrades) fell by
more than a quarter to just under USD 38 billion, a sharp reversal from the recordhigh investment in 2019. As the most lucrative products such as gasoline, diesel
and jet fuel registered large declines, refinery runs fell to 74.4 mb/d, a level last
seen in 2010, and margins plunged to their lowest in at least two decades. This
triggered a wave of announcements of closures for 2020-26, mostly in advanced
economies, amounting to 3.6 mb/d in total.
However, refining expansion plans are continuing in parallel in regions with accessto cheap feedstock and growing markets, most notably in developing economies
in Asia and the Middle East. These regions, which accounted for 80% of theinvestment in 2020, are expected to underpin a rebound in investment in 2021.
Some 8.5 mb/d of new refining capacity is still expected to come online over theperiod to 2026, resulting in 4.9 mb/d of net capacity additions. The projected scaleof net capacity additions is much larger than that of refined product demand
growth, which is likely to force further capacity closures or repurposing.
A number of refiners have started to retool for a new age characterised bystructural demand shifts from transport fuels to non-combustion uses (such as
petrochemical feedstock) and accelerating momentum for energy transitions.
Some are betting on the most resilient part of demand – petrochemicals – bymaking investments in petrochemical integration. Others are expanding into lowcarbon businesses such as advanced biofuels, chemical recycling and low-carbon

PAGE | 26

IEA. All rights reserved.

hydrogen in order to secure new sources of revenue. For example, someWorld Energy Investment 2021

Fuel supply

345 thousand barrels per day (kb/d) of refining capacity has already been
converted to biorefineries and there are plans for 840 kb/d more. These strategic
shifts are set to grow against a backdrop of increasing electro-mobility.

Liquefied natural gas and pipelines
Qatar makes a strong statement of intent with its moveto expand LNG capacity
LNG liquefaction investment dropped by more than a third in 2020 but is expected
to grow by more than two-thirds in 2021 to over USD 23 billion. Qatar, Russia andthe United States are set to pick up construction project activity, although theoutlook remains very uncertain in Mozambique due to security concerns. LNG
demand grew by 1% in 2020 (net of reloads), setting it apart from natural gas
consumption as a whole, which recorded a 1.9% decline. However, the record
year for financial close on new LNG projects in 2019 was followed by a year inwhich only one project reached FID – the 3.25 million tonne per annum (Mtpa)
Costa Azul project in Mexico – from a queue of over 200 Mtpa worth of potential
projects worldwide. This investment standstill was due to a combination of excess
supply and low global gas price benchmarks, widespread capex cuts by the major
national and international oil companies, uncertainty about future LNG demand
related to the economic impacts of the pandemic, and a lack of buyer appetite forlong-term LNG contracts.

10

200

2010

EuropeRussiaNorth America

AfricaOthersAustralia

bcm per year

400

2025

20

2020

2018

2016

2014

2012

2010

20

600

2022

40

30

2019

60

800

2016

80

40

2013

100

Billion USD (2019)bcm per year

Sanctioned LNG export capacity (LH) and annual investment spending on sanctioned
projects (RH)

Middle East
Cumulative capacity(right axis)
IEA. All rights reserved.

PAGE | 27

IEA. All rights reserved.

Note: bcm = billion cubic metres.

World Energy Investment 2021

Fuel supply

Market signals for LNG picked up in late 2020, with a sharp rebound in prices due
to colder weather across Asia, a drop in nuclear and coal in Japan and Korea, andunplanned outages of LNG terminals: in early 2021, some spot LNG cargoes werebought for up to USD 40 per million British thermal units. US LNG exports ramped
up to record highs in late 2020 and entered 2021 with strong growth, spurred inpart by falling charter rates.
The announcement in February 2021 of an FID for Qatar Petroleum’s 33 Mtpa
North Field East expansion, the largest single LNG project by capacity eversanctioned, ensures continued capacity growth from the mid-2020s. The company
also launched a trading arm in 2020 to participate in the growing spot market for
LNG through physical and derivatives trading. As the lowest-cost supplier with
ample gas reserves, Qatar and its expansion, inclusive of carbon capture, casts along shadow over other aspiring LNG projects, particularly those in the
United States where there is a long queue of potential projects seeking to moveto FID. Qatar’s bid to offer low-emissions LNG is also a statement of intent toburnish the environmental credentials of LNG. It comes at a time where a growing
contingent of buyers have made net-zero commitments and appear interested inmeasuring, and in some cases offsetting, the emissions associated with theircontracted cargoes.
On the import side, there are nearly 200 bcm of regasification capacity underconstruction worldwide. Despite construction delays due to Covid-19 and projectspecific issues, a pipeline of new projects, particularly in Asia, is aiming to ensurethat infrastructure is in place to satisfy anticipated growth in demand.
Natural gas pipelines saw a mixture of traditional project advances and delays in2020 while natural gas grid operators in mature markets began to eye
opportunities to build and operate cross-border hydrogen networks. In the UnitedStates, additional Permian associated gas volumes secured routing to export
options in Mexico and the US Gulf Coast with the completion of KinderMorgan’s
Permian Highway pipeline and Whitewater/MPLX’s Aqua Blanca Delaware
gathering system, which will connect to Whistler in 2021. In Europe, gas
infrastructure and hydrogen network planning are becoming increasingly
integrated: the industry-led European Hydrogen Backbone initiative foresees
some 40 000 km of hydrogen pipeline infrastructure in Europe by 2040, with

PAGE | 28

IEA. All rights reserved.

two-thirds of this being repurposed pipelines.

World Energy Investment 2021

Fuel supply

Biofuels (liquids and gases)
Policies are cushioning some of the effects of the slump
on biofuels
Near-term investment prospects for liquid and gaseous biofuels are heavily reliant
on government policies to counteract the uncertainties created by the pandemic,
in particular the lower operating margins arising from lower fuel prices. Investmentin these projects dipped in 2019 and fell further in 2020 to just over USD 8 billion.
In the case of liquid fuels, the focus for new production capacity is changing fromethanol to hydro-treated vegetable oil (HVO), also known as renewable diesel, forwhich global production capacity is set to triple by 2025. For example, in the UnitedStates, policy-driven demand of HVO from the federal Renewable Fuel Standard(RFS2), California’s Low Carbon Fuel Standard (LCFS) and the reintroduced
Blender’s Tax Credit has not only counterbalanced the effects of the pandemic but
also caused a flurry of investments in production capacity, including theconversion of several traditional refineries. Investment in biodiesel capacity
remained strong also in Asia and Brazil.
Ethanol capacity investments are driven by Brazil and China, which together
represent around half of global investments, followed by Southeast Asia, but
Covid-19 has affected investment plans in several markets. Capacity in China has
doubled since 2017, and several large new plants are under development. In
2020, due to ethanol shortages associated with the Covid-19 pandemic, the Thaigovernment pushed back the policy making E20 the principal blend for passenger
vehicles. Brazil scaled back the 2020 target for its RenovaBio policy by 50% andthe 2021 target by 40%, due to Covid-19 demand decreases.
Biomethane is emerging as a promising low-carbon alternative to natural gas. The
current market is about 8 bcm – a tiny fraction of total natural gas supply – butinvestment activity has picked up in recent years as several countries, particularly
in Europe and North America as well as Brazil, China and India, have encouraged
its use, primarily in the transport sector. There are now more than
1 000 biomethane plants around the world, incentivised by a variety of policy
instruments such as quotas, direct subsidies, tax exemptions and guaranteedofftake agreements. Several oil majors, notably Total, BP, Shell and Chevron,
have recently announced forays into biomethane, following earlier initiatives by

PAGE | 29

IEA. All rights reserved.

many European utilities and gas grid operators.

World Energy Investment 2021

Fuel supply

Hydrogen
Stimulus spending is giving low-carbon hydrogen amajor boost
Despite setbacks to some projects and near-term uncertainty about its market
growth, hydrogen is perhaps unique among fuels in that its prospects are stronger
in mid-2021 than before the pandemic. This outcome rests in part on the relianceof hydrogen projects on government grant funding, for which plans have beenmarkedly expanded in economic recovery plans around the world. Nine countries
plus the European Union published hydrogen strategies or roadmaps in 2020 and
one so far in 2021, with nearly twice this total currently under development.
Although current production and consumption are modest, expectations for thenear-term expansion of low-carbon hydrogen 4 are higher than ever. Spending in
the four areas of project planning, project completion, equipment manufacturing
and equity purchases were all at record levels in 2020. Capital investment for lowcarbon hydrogen is gaining momentum, with the electrolysers coming online in2020 alone representing nearly USD 70 million.

Mwe

Capacity of electrolysers for hydrogen production by commissioning year, by intended
use of hydrogen

350

Other

300
250

Hydrogen-based
synthetic fuels

200Electricity storage

150

Gas grid blending

100

Industrial
applications

2021E

2020

2019

2018

2017

2016

2015

2014

2013

2012

2011

2010

50

Vehicles

IEA. All rights reserved.
Notes: 2021E values represent estimates based on successful completion of all projects publicly stating a 2021
commissioning data as of the start of 2021. MWe = megawatts of electricity input; in some cases this is calculated fromhydrogen output volumes if otherwise not stated. Includes electrolysers for the supply of hydrogen for energy purposes oras an alternative to fossil fuels in industry, such as chemical production and oil refining.

PAGE | 30

IEA. All rights reserved.

4
For low-carbon hydrogen, either the emissions associated with fossil-based hydrogen production are prevented, for example
by capturing and storing the CO2, or the electricity input to hydrogen produced from water is renewable or nuclear sources.

World Energy Investment 2021

Fuel supply

Project completions in the area of water electrolyser installations for energy
purposes reached an estimated 65 MW e globally in 2020. While this was far below
the 140 MW e that project developers at the start of 2020 were aiming tocommission, it was nonetheless more than double 2019 levels. Vehicle fuellingand industrial applications led the intended uses of hydrogen from theseelectrolyser projects. Much of the focus in Europe has turned to industrial
applications, including the steel and refining sectors, as early markets for captive
low-carbon hydrogen production. In Japan, the power sector is receiving renewed
attention for hydrogen as a means of electricity storage and replacing coal andnatural gas with ammonia and hydrogen. However, at 50%, the share ofelectrolysers installed for transport applications was at its highest point since 2010
due to the expansion of this type of project in China.
Several hundred MW e of electrolysers are currently under construction or seek
financial close for an announced commissioning before the end of 2021. Although
delays can be expected for some projects, orders have recently been placed fordelivery of some large electrolysers in 2021 and 2022, notably a 20 MW e plant for
fertiliser production in Spain, a 24 MW e plant for chemicals manufacture in
Germany and a 20 MW e plant for a refinery in Denmark. As in 2020, developments
in China will play a major role in determining the overall level of investment. Not
all of these electrolysers are expected to produce exclusively low-carbonhydrogen, however, with the majority anticipated to run on grid electricity, at least
initially.
In addition to electrolyser installations, investment activity in electrolyser
manufacturing and equity investments in electrolyser technology companies
reached new highs. For alkaline electrolysers, European manufacturers havepublished plans to expand existing plants to achieve a capacity of around 8 GW e
per year, compared with roughly 2 GW e globally in 2020. In Europe, there areplans to more than double proton exchange membrane production capacity toover 1 GW e per year by 2023, and there have been recent announcements that,
if realised, could expand anion exchange membrane and solid oxide electrolyser
production to over 1 GW e per year in total. In a sign of the high interest of investors– including corporate investors – in early-stage hydrogen technology companies,
H2Pro, Hystar, Syzygy Plasmonics and Utility Global all had successful
fundraising rounds in recent months.
No FIDs were taken in 2020 for projects to produce low-carbon hydrogen fromfossil fuels with CCUS but interest has risen sharply, including in fossil fuel

PAGE | 31

IEA. All rights reserved.

producer countries that are exploring hydrogen or ammonia exports.

World Energy Investment 2021

Fuel supply

Carbon capture technologies
After a long wait, signs that CCUS may be preparing for
take-off
From the start of 2020 to early May 2021, governments and industry pledged morethan USD 12 billion to CCUS projects and programmes. Investments in CCUS
technologies are starting to increase, prompted by increased policy support insome key markets, rising scrutiny of the emissions intensity of fuel supply, andimproved co-ordination and alignment along the complex chain of interests
involved. Nonetheless, the conversion rate of announcements into CCUS projects
that actually start operation remains fairly low.

Mt CO₂ per year

Announced CCUS projects versus projects starting operation

Announced

60

6

50

5

40

4

30

3

20

2

10

1
2017

2018

2019

2020 2021
Jan-May

Projects starting operation

2017

2018

2019

2020 2021
Jan-May

IEA. All rights reserved.
Notes: ”Announced” includes the CO2 capture capacity of projects by year of public announcement. “Projects starting
operation” includes the maximum CO2 capture capacity of new facilities by the year the facility was commissioned.
Sources: Based on GCCSI (2021) and IEA tracking and analysis.

Projects to watch out for include Longship in Norway, which will initially captureand store CO2 from local industry with plans to expand to include additional
industrial facilities across Europe. The central component of Longship is theNorthern Lights CO2 storage project, backed by Equinor, Total and Shell, which
secured government funding in 2020 and launched as a joint venture in March
2021. Integrated CCUS projects for large industrial clusters are also an increasing
focus: the Port of Rotterdam (which accounts for some 15% of total Dutch
emissions) has reportedly secured backing from the government and is looking to

PAGE | 32

IEA. All rights reserved.

take FID in early 2022. UK-based CCUS projects, including Northern EnduranceWorld Energy Investment 2021

Fuel supply

Partnership, Net-Zero Teeside and Zero Carbon Humber, received overUSD 230 million in funding from the UK Industrial Strategy Future Challenge Fundto complete front-end engineering needed to take projects to FID.
A push to lower the emissions intensity of delivered LNG is behind Qatar
Petroleum’s plan to include a CCS component to its North Field East expansion.
In the United States, NextDecade has announced its intention to take FID in 2021
on a 5 Mt CCUS project to offset emissions at two of its proposed Rio Grandeliquefaction trains, together with Occidental. Valero, BlackRock and Navigator
Energy Services have announced a partnership to gather, transport and store 5 Mt
of CO2, initially focusing on CO2 from ethanol plants in the US Midwest but open
to other industrial facilities. Proposed amendments and enhancements to the 45Q
tax credit as well as new support for CO2 transport and storage infrastructure could
further boost CCUS investment prospects in the United States. Meanwhile, Elon
Musk recently pledged USD 100 million for a carbon capture technology
competition, and the Microsoft Climate Fund is backing various efforts to capture
carbon including direct-air capture.

The oil and gas industry in transition?
From a low base, spending in clean energy by oil andgas companies is starting to pick up
Oil and gas companies have been proficient at delivering the fuels that form the
bedrock of today’s energy system, but against a backdrop of persistently highglobal emissions they are coming under increasing pressure to deliver solutions
to climate change. These may sound like binary choices, but most companies will
try to do both: in practice the two are closely interlinked, as most of the financial
resources for diversified spending, at least initially, will come from traditional
investments in supply. 5
Traditional business areas cannot continue as usual: all operations have to be
low-cost in today’s market environment; they also have to be low-emissions. In
many jurisdictions, investment and market opportunities are closely linked to acompany’s ability to deliver on environmental performance. For example, therecent North Sea Transition Deal agreed in the United Kingdom made any future

There are a handful of cases where this is clear-cut, when a company simply exits the fuel supply business, e.g. in the waythat some diversified mining companies, e.g. Rio Tinto, have simply exited the coal business, or when Ørsted sold its oil andgas upstream assets. It is worth noting, however, that these exits do not necessarily reduce supply, as the assets are bought
and operated by others.

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5World Energy Investment 2021

Fuel supply

licensing rounds contingent on the industry hitting targets for emissions
reductions, while also tying the industry’s capabilities to new technologies such as
offshore wind, hydrogen and CCUS.
A crucial distinction among different types of oil and gas companies concerns
access to resources. While NOCs have, in most cases, a large domestic resourcebase to which they have exclusive or preferential rights, the same is not true forall. As international players retreat from exploration, so their funnel of new projects
gradually narrows and they move towards a model where they rely on their bestperforming existing assets to fund any new supply investments and to make theirstrategic moves into new areas and technologies. Company approaches to energy
transitions vary greatly, but all have seen a drop in reserve-replacement ratios toan average of 80% over the last decade (BP recently ceased using reservereplacement ratio as a strategic performance indicator).
As majors downsize portfolios, and midsize international independents struggle toaccess capital, smaller resource-holding countries – especially those indeveloping economies – are left with a smaller potential pool of investors andoperators. Some host governments, for example in Angola or parts of West Africa,
are reviewing upstream terms in order to retain investor interest; this may open up
additional opportunities for internationally minded NOCs, including those in China
and Russia.
Key financial performance metrics for the Majors

50%

AA
14.0

0%

AA13.0

-10%

-50%

A+
12.0

-20%

-100%

A
11.0

20%
10%

2020

2015-192010-142005-09

2000-040%

Operating income margin
Gearing ratio (total capital)

2021 Q1

15.0
AA+

2020

100%

2015-1930%

2010-1416.0
AAA

2005-09150%

2000-0440%

Reserve-replacement ratio (left)
S&P credit ratings (right)
IEA. All rights reserved.

PAGE | 34

IEA. All rights reserved.

Note: In this classification, the “Majors” grouping includes seven companies: BP, Chevron, ExxonMobil, Shell, Total,
ConocoPhillips and Eni. Credit ratings are averaged by company market capital at the time ratings were given.
Source: Bloomberg Terminal (2021).

World Energy Investment 2021

Fuel supply

Capital expenditure on clean energy has been a minor share of overall investment,
but this is changing as companies – most notably the large European players –seek to ramp up clean energy investment. BP says it will increase its annual clean
energy investment from USD 500 million in 2019 to USD 5 billion per year by 2030,
with an interim goal of USD 3-4 billion per year by 2025. Total has announced thatsome USD 2.5 billion of its planned total investment of USD 12-13 billion in 2021
will go into renewables and electricity (including gas-fired power). Shell is targeting
a 25% share of investment on clean energy capital expenditure by 2025. Eni’s
strategic plan for 2021-24 targets 20% of average yearly capex of EUR 7 billion toclean energy projects.
NOCs have displayed a range of strategies in line with individual company
strengths, but on the whole they are staying closer to their core oil and gas supply
businesses. Direct investments in renewables are typically motivated by a drive to
reduce emissions intensities rather than to diversify into electricity supply.
CNOOC, Petrochina and Sinopec have targeted peak carbon emissions fromoperations by 2025 largely via renewable investments in solar and offshore wind.
A number of companies, including Saudi Aramco and ADNOC, are exploring
possibilities to develop low-carbon hydrogen production, as well as investments in
CCUS.
Emerging oil and gas company transition strategies have spanned project finance,
mergers and acquisitions, venture capital, and R&D spending, and cast a wide net
across clean energy businesses. Our project tracking for 2021 suggests that thesecommitments are already starting to have an impact. If maintained for the full year,
this performance would mean that the share of capital investment going to clean
energy investments could rise to more than 4%, from 1% in 2020. Project financing
for offshore wind - closely aligned to industry strengths – was already considerably

PAGE | 35

IEA. All rights reserved.

higher in the first quarter of 2021 than in the whole of 2020.

World Energy Investment 2021

Fuel supply

Billion USD (2019)

Clean energy investments made by selected oil and gas companies, including data
through May for 2021

5

5%

Other

4

4%

Biofuels

3

3%

2

2%

1

1%

2015

2016

2017

2018

2019

2020

CCUS
Offshorewind
Onshorewind
Solar PV% total
capex

2021

IEA. All rights reserved.
Notes: Companies included in this tracking are the Majors and selected others: ADNOC, CNPC (China National Petroleum
Corporation), CNOOC, Equinor, Gazprom, Kuwait Petroleum Corporation, Lukoil, Petrobras, Repsol, Rosneft, Saudi
Aramco, Sinopec and Sonatrach. The estimated share of total capex in 2021 is based on projects announced through 9
May 2021 and assumes that this pace of investment is maintained through the year.
Sources: IEA calculations based on Bloomberg (2021); BNEF (2021), Clean Energy Pipeline (2021); company reports.

Coal
Coal supply investments are determined by what
happens in Asia, led by China and India
Investment in coal supply is expected to rise slightly in 2021, after a larger
reduction of nearly 9% in 2020. Global investment dynamics are largely
determined by what happens in Asia, notably in China and India. Only 17% of
global consumption involves international trade; the vast majority of the world’s
coal is produced within Asia, for consumption in the country in which it is produced.
As a result, investment trends in coal supply are largely determined by domesticoriented companies, often state-owned, in these countries. Coal investment in
China and India in 2020 stayed at similar levels to 2019, whereas in the rest of theworld they fell substantially, by around one-quarter. International coal players,competing for that 17% share of global consumption, face challenges familiar to
many commodity producers related to boom-and-bust cycles. In addition, they are
the focus for climate-related pressure by investors and other stakeholders, inparticular regarding investments in thermal coal and lignite.
In China, coal supply investment is targeted at modernisation of the sector. This

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IEA. All rights reserved.

involves continued efforts to shut down small inefficient mines and invest in fullyWorld Energy Investment 2021

Fuel supply

mechanised, modern mines. At the corporate level, the reorganisation ofcompanies through mergers and acquisitions, promoted by the government, iscreating a smaller number of players with stronger financial capabilities. In India,
a key objective is to reduce imports – with state-owned companies, mainly Coal
India Ltd (CIL), but also Singareni, investing to ramp up production, whiledevelopers of captive blocks are investing to reduce dependency on CIL and/or
imports. The government is also seeking to encourage commercial mining via aseries of auctions. In 2020, the response to the first round was lukewarm, limited
to Indian companies, and the government has launched a second tranche in 2021.
Investment in coal supply

IEA. All rights reserved.

The demand trajectory is the main uncertainty facing investors, especially for any
new mining projects, given China’s announced target of carbon neutrality by 2060
and the burgeoning pace of renewables investment in India, alongsideincreasingly ambitious climate pledges in many advanced economies. Financing
and underwriting coal projects are becoming ever more challenging, with moredifficulties for thermal coal than for coking coal. In the case of international
diversified miners, the weak prospective for demand is reinforced by the pressure
from shareholders, environmental, social and governance (ESG) requirements
and also regulations such as the EU taxonomy, which are increasing scrutiny on

PAGE | 37

IEA. All rights reserved.

the carbon footprint of every stakeholder.

World Energy Investment 2021

Fuel supply

Implications
Fuel supply investment decisions are caught between
competing visions of the future, but fuels of different
sorts will be vital whichever pathway the world follows
Today’s investment spending on fuels appears caught between two worlds,
neither strong enough to satisfy current fossil fuel consumption trends nor
diversified enough to meet tomorrow’s clean energy goals. Investments in lowcarbon fuels, such as hydrogen, biofuels and CCUS, are picking up but still lackmature opportunities to scale up spending as required in climate-driven scenarios.
There is a differentiation to be made between oil and natural gas, with investmentsin the latter being generally more resilient. But what emerges clearly from ouranalysis is that, whichever way the world evolves, the production, handling anddistribution of fuels continues to be a pivotal element of a well-functioning energy
system. Whichever way the world evolves, the production, handling anddistribution of fuels – of different types – continues to be an important element ofa well-functioning energy system.
Global investment in fuel supply compared with annual average investment needs,
2025-2030, by scenario

IEA. All rights reserved.

In the case of oil and gas, upstream investment is now half of what it was in 2014,
while oil and gas demand – even with the effects of the pandemic – has not

PAGE | 38

IEA. All rights reserved.

changed to anything like the same extent. The industry is undoubtedly able to doWorld Energy Investment 2021

Fuel supply“more with less” today: upstream operations are much leaner and more efficient,and costs have contracted as companies rationalised project designs and plans.
There has also been a strategic shift in favour of smaller, more modular
investments with shorter lead times, as a way to limit upfront capital spending,accelerate paybacks and reduce exposure to long-term risks. Nonetheless, thevolume of oil and gas resources subject to FIDs in 2020 was at its lowest level in
decades; discovered volumes were also down close to historical lows. Spendingin 2014 appears excessively high; the “new normal” in 2020-21 is now geared
towards a future in which consumption of oil and gas is much more constrained.
While trends in the power sector are moving towards a higher reliance on capitalintensive technologies that have lower operating expenditures, upstream oil andgas is moving may be moving in the opposite direction – becoming an ‘opex’ rather
than a ‘capex’ business. Many companies are seeking to harvest as much as they
can from existing “brownfield” operations rather than expand aggressively into
new areas. In a Net Zero by 2050 Scenario, brownfield investments, alongsidesome projects under development and those approved as of 2021, would be theonly upstream investments required.
Breakdown of oil and natural gas upstream spending

IEA. All rights reserved.
Source: IEA calculations based on Rystad (2021).

For some, the retreat in upstream spending is a clear signal that the world isentering a new price cycle, in particular for oil, as the supply side transitions awayfrom hydrocarbons faster than do the world’s consumers. This is indeed a

PAGE | 39

IEA. All rights reserved.

possibility, if oil and gas investment levels stay where they are and policies

World Energy Investment 2021

Fuel supply

affecting their use do not strengthen considerably. The influence of decline rates
is too often ignored but they exert a powerful force on future production: in theabsence of continued investment, production from existing fields falls at a rate ofroughly 8% per year; so, if upstream spending slows for a given country orcompany, then their “supply transition” can become very rapid.
In practice, the prospects for a near-term tightening in markets are limited by thespare capacity held by the world’s major resource holders, notably in the Middle
East, who stand to pick up most of any recovery in demand. This would mark ashift in markets and market influence compared with the 2010s, when US shale
met the majority of global demand growth. A similar dynamic is visible in the global

PAGE | 40

IEA. All rights reserved.

gas outlook, as a result of Qatar’s determination to maintain its leadership in LNG.

World Energy Investment 2021

Energy end-use and efficiency

Energy end-use and efficiency
Overview
Energy efficiency investment has faced a difficult environment due to thepandemic. Strains on corporate and household budgets, uncertainty about thepace of recovery, and lower fuel prices create the risk of delay in spending on
more efficient buildings, appliances, industrial equipment and vehicles. With
weaker economic incentives, government policies and the design of stimulus
packages play critical roles in determining the pace of investment.
Trends in efficiency investment in 2020 bear witness to the importance of thesepolicy drivers, as energy efficiency investment in buildings received a boost fromexisting emissions reduction policies and some stimulus-related government
programmes, mostly in Europe. In other regions, however, spending on efficiency
has fallen, or grown more slowly, due to a downturn of construction activity.
Transport-related efficiency investment fell in 2020, while estimated spending in
the industry sector remained stable.

Billion USD (2019)

Global investment in energy efficiency by sector

350

Transport

300

Industry

250

Buildings

200
150
100
50
2014

2015

2016

2017

2018

2019

2020

2021E
IEA. All rights reserved.

PAGE | 41

IEA. All rights reserved.

Notes: An energy efficiency investment is defined as the incremental spending on new energy-efficient equipment or thefull cost of refurbishments that reduce energy use. The intention is to capture spending that leads to reduced energy
consumption. Under conventional accounting, part of this is categorised as consumption rather than investment. For more
information, see methodology document.

World Energy Investment 2021

Energy end-use and efficiency

Trends for efficiency spending in 2021 remain highly uncertain and will depend on
the pace of economic recovery – which will shape consumer and corporate
demand – as well as on government support and the inclusion of efficiency
measures in recovery packages. Based on current expectations, a number of key
indicators that shape efficiency spending in China, the United States and Europe
are set to rise: vehicle sales in particular, as well as indicators of construction andindustrial activity.

Index (2010 = 100)

Selected indicators influencing efficiency investment in three major economies,
2010-2021E

EU

250

US

China

2010
2015
2020
Industrial value-added

2015
2010
2020
Construction value-added

200
150
100
50
2010
GDP

2015
2020
Vehicle sales

IEA. All rights reserved.
Notes: GDP = gross domestic product. GDP and value-added are in constant currency units.
Sources: IEA calculations based on BEA (2021); Eurostat (2021); NBS (2021).

Buildings
Policies and stimulus spending have put a floor underinvestment in more efficient buildings
Energy efficiency investment in buildings has caught some policy momentum,
allowing the headline global figure to remain robust through the pandemic. Ourestimate rose by an unprecedented 11% to almost USD 180 billion in 2020 fromover USD 160 billion in 2019. Despite the negative impact of the pandemic on the
global building construction sector, which is estimated to have fallen by around
2% to USD 6 trillion in 2020, a ramp-up of investments in Europe was strong

PAGE | 42

IEA. All rights reserved.

enough to accelerate global investments in this area.

World Energy Investment 2021

Energy end-use and efficiency

200

Other
China

150

United States
Europe

100

50

2015

2016

2017

2018

2019

2020

2021E
IEA. All rights reserved.

Efficiency investment in buildings is determined by two main factors. First, byconstruction industry activity and its delivery of a proportion of low-energy orsustainable rated buildings with efficiency above building codes; most efficiency
investments in EMDEs such as China, India and Southeast Asia are related to
new construction. Second, by the renovation and refurbishment of existingbuildings with more efficient systems, which occur either through building ownerdirect investments, or through government policies; these account for the larger
shares of efficiency investments in Europe and North America.
The strong growth in 2020 was mainly driven by a doubling of KfW’s efficientconstruction and renovation programmes to EUR 30 billion in Germany, based on
decisions made before the Covid-19 crisis. However, existing buildings’ policies in
Europe are also set to be reinforced by recovery strategies and stimulus spending.
Italy, for example, implemented a Superbonus programme that offers a tax
incentive worth 110% of the investment for energy-efficient renovations. The
French government announced nearly EUR 7 billion for energy efficiency
improvements in private homes, office buildings and public buildings such as
schools and town halls, with support available from 2021 onwards. OverUSD 20 billion worth of investment is 2020 can be attributed to electrification andthe increase in usage of heat pumps.
Thus far, the United States has not yet directed additional funding towards energy
efficiency investment, beyond existing programmes. However, proposed
infrastructure-related policies in the United States could quickly change the

PAGE | 43

IEA. All rights reserved.

Billion USD (2019)

Efficiency and electrification investments in the buildings sector

World Energy Investment 2021

Energy end-use and efficiency

investment landscape for energy efficiency, if adopted. Asian markets presented
a mixed picture with India and the Association of Southeast Asian Nations(ASEAN) region showing declines in energy efficiency investment in buildings,
while China saw a 5% increase along with modest growth in Japan and Korea.

Transport
Electrification is the main source of efficiency gains in
the transport sector
Investment in transport efficiency has been subject to conflicting forces. Turnoverin the overall transport stock has slowed due to the fall in overall global car sales,
and hesitancy in some markets to commit to more efficient purchases. However,this trend was offset to a degree by buoyant sales of electric vehicles (EVs), which
are a highly efficient technology. Overall, we estimate that transport efficiency
investments were over USD 50 billion in 2020, a 26% drop on 2019. Our
provisional expectation for 2021 is around USD 65 billion.
The standout trend in efficiency investment in 2020 relates to EVs, which accountfor the majority of efficiency-related spending gains in transport. A surge in salesin Europe and China has been underpinned by stimulus spending (e.g. Next
Generation EU Recovery fund and EV purchase subsidy in France, Germany andthe United Kingdom) and strong policy support (e.g. mandatory emissions
reduction targets for new cars in Europe and mandatory new EV quotas in China),
as well as by improved performance and a wider choice of models. For the firsttime since 2015, EV sales in Europe outpaced those in China.
However, the growth in global passenger EV sales has been offset by a slowdown
in sales of electric buses and light commercial vehicles, where companies andmunicipalities have struggled to justify higher upfront cost for electric models
despite lower lifetime fuel costs. In other major markets where policy support wasless strong, outside Europe and China, EV sales dropped by 8% on average,
alongside a steep decline of 15% in total passenger car sales. Although the shareof government support in overall spending on EV purchases has been on a
downward trend, less mature EV markets (including many other EMDEs) will still

PAGE | 44

IEA. All rights reserved.

require strong policy and financial support to kick-start growth.

World Energy Investment 2021

Energy end-use and efficiency

2.5

5%

2.0

4%

1.5

3%

1.0

2%

0.5

1%

China
North America
OthersEuropeJapan and Korea
Share of total sales

150

Spending on EV purchases

30%

125

25%

100

20%

75

15%

50

10%

25

5%
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020

6%

Billion USD (2019)

Global EV sales and market share
3.0

2011
2012
2013
2014
2015
2016
2017
2018
2019
2020

Millions

Trends in global EV sales and purchase spending

Consumer spending
Government incentives
Share of government spending
IEA. All rights reserved.

Notes: EVs include plug-in hybrids, battery electric and fuel cell vehicles for passenger cars. Government spending
includes direct and tax expenditures on battery-electric vehicles and plug-in hybrid EVs. Spending is inclusive of sales
taxes. Government incentives are assigned per model in each year based on national policy documents and include tax
incentives and transfers to consumers or manufactures to reduce purchase prices. Non-purchase incentives, such as lower
road taxes or parking fees, are not included.
Sources: IEA (2021a); MarkLines (2021).

One noticeable trend in transport efficiency is the continued popularity of SUVs,
offsetting some of the benefits in increased share of EV sales in 2020. Despite theincreased availability of electric SUV models and improvement in fuel efficiency in
new SUV models, an average SUV still consumes around 20% more energy than
medium-sized vehicles (IEA, 2021b). Global sales of SUVs declined by 7% while
their share of new car sales rose to 46% in 2020, a new record in 2020. More thanhalf of new cars sold in the United States and 46% of cars sold in China are SUVs
(these two markets account for over 50% of global SUV sales). The share of SUVs
in European sales levelled off at just around 40% in 2020. Although the total
number of SUVs sold in India fell in 2020, the share of SUVs climbed to 46% due

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IEA. All rights reserved.

to a drop in total passenger car sales.

World Energy Investment 2021

Energy end-use and efficiency

Share of SUVs in total passenger car sales in key markets

60%
50%
40%
30%
20%
10%
2010

2011

United States

2012

2013
Europe

2014

2015

China

2016
India

2017

2018

South Africa

2019

2020
GlobalIEA. All rights reserved.
Note: Crossover utility vehicles and pickup trucks reported as commercial vehicles are not included.
Sources: IEA calculations based on MarkLines (2021) and OICA (2021).

Industry
The economic downturn has slowed investment in moreenergy-efficient industrial equipment
Investment in energy efficiency contracted by an estimated 1% in 2020, with the
reductions coming mainly from heavy industrial sectors including steel, chemical,
cement, paper and aluminium companies. Curtailed operations due to thepandemic and the economic slump brought down industrial output in energyintensive industries by around 4%, and limited the upgrade of less energy-efficientindustrial equipment in industry sectors as well as expenditure on new energyefficient capital purchases.
China was one of the few economies with growth in real industrial value-added in
2020, a rise of some 3%. As such, it maintained its position as a leader in industry
efficiency investment with a total share of over 40%, followed by India (9%) andSoutheast Asia (8%). However, the investment growth in China was offset by the
reduction in other major economies including the United States and Europe, where
both the gross industrial value and the investment spending by ESCOs declined
in 2020.
Industry efficiency investment is heavily affected by the enabling efficiency policies

PAGE | 46

IEA. All rights reserved.

such as energy performance standards and incentive mechanisms for energy

World Energy Investment 2021

Energy end-use and efficiency

savings and emissions reductions.Only 35% of the global industrial energy
demand is covered by energy efficiency policies, a deficit that needs to be
narrowed to deliver the scale-up of investment that would be required in climatedriven scenarios. In the early 2010s, China and India set mandatory targets tosave energy in industry sectors (e.g. the 11th Five-Year Plan in China and the
Perform Achieve and Trade Scheme in India) but other emerging economies have
yet to implement similar schemes for their industrial sectors.

Renewables for end-use
Outside the power sector, a much less dynamic picture
for investment in renewable applications
Investment in renewables for end-use, including solar thermal applications (fordistrict, space and water heating), bioenergy and geothermal, reached
USD 23 billion in 2020, a 10% decline compared with 2019. Investment has been
on a declining trend in recent years, but is set to rise in 2021. China and Europe,
which represent three-quarters of total investment, drive the prospective increase,but this depends on economic growth and the extent of policy support. The costof solar heat for industrial processes has fallen by over 40% in Europe and larger
plants drove the levelised cost of heat down by half between 2014 and 2020
(IRENA, 2021). Global heat pump sales continued to grow in 2020, driven by
installations in France, Germany and Italy, but remain tied to new building
construction. The cost of heating with heat pumps is decreasing as new
installations and economies of scale are realised in Europe and the technology

PAGE | 47

IEA. All rights reserved.

becomes more affordable.

World Energy Investment 2021

Energy end-use and efficiency

Billion USD (2019)

Investment in renewables for end-use

30

Other

25

China

20

United States
Europe

15
10
5
2015

2016

2017

2018

2019

2020

2021E
IEA. All rights reserved.

Implications
Efficiency and end-use investment lags far behind what
is required to hit net zero goals
Global energy efficiency, as measured by the energy intensity of the global
economy, has to improve at a rate of at least 3% per year in order to be consistent
with the SDS, and by 4% per year by the end of the decade in a scenario
consistent with reaching net-zero emissions by 2050. Prior to the crisis, the rateof progress was well short of the pace required, and the pandemic pushed thisindicator down to only 0.8% in 2020.
Accelerating the pace of efficiency improvements will require a dramatic increase
in related investments, incentivised by stronger policies. The levels of investment
seen in recent years are set to rise in the 2020s in the STEPS, a reflection ofgreater attention to efficiency in post-Covid and net-zero strategies as well as apick-up in the turnover of the capital stock as economies recover. But thisprojection is dwarfed by the requirements of climate-driven scenarios, which see
a rapid surge in sales of electrified and more efficient vehicles, wide-ranging
industrial efficiency gains, and a continued ramp-up of spending on efficient newbuildings and retrofits. All of these changes need to be enabled by strong policy

PAGE | 48

IEA. All rights reserved.

supports and improved financing conditions.

World Energy Investment 2021

Energy end-use and efficiency

Global investment in end-use and energy efficiency compared with annual average
investment needs, 2025-2030, by scenario

Transport(electrification)

1 200

Transport (energy
efficiency)

900

Industry(electrification)

600

Industry (energy
efficiency)

300

Buildings (end-use
and electrification)
Buildings (energy
efficiency)
2016-202026-30
STEPS

2026-30
SDS

2026-30
NZE
IEA. All rights reserved.

PAGE | 49

IEA. All rights reserved.

Billion USD (2019)

1 500

World Energy Investment 2021

R&D and technology innovation

R&D and technology innovation
Overview
The world’s capacity to bring new technologies to market has been weakened asa result of the disruptions caused by the pandemic. Governments can ensure that
this weakness is short-lived through stimulus funding and measures that boost
private incentives to innovate. For many energy technologies, increased publicfunding is needed to assume most of the risks of basic research and first-of-a-kinddemonstration projects, as well as leveraging private investment in R&D andsteering it towards priority needs for future net-zero emissions energy systems.
In 2020, trends in energy innovation spending diverged between governments andcorporations. Our tracking showed a clear albeit gradual trend towards higher
government spending on low-carbon energy R&D, while private-sector energy
R&D spending dropped as the pandemic caused corporate budgets to be cut or
led to underspending on projects. Market uncertainties and lower sales revenues
have reduced the funds available to entrepreneurs seeking to scale up newtechnologies.
At the start of 2021, the signals for investment in low-carbon energy innovation
are positive and they come from both public and private sources. As core elementsof their plans to transition their energy systems to net-zero emissions, major
economies including China, Japan and the United States have highlighted
innovation and proposed increased levels of funding. In China, documents insupport of the 14th Five-Year Plan 2021-25 give a central role to energy
innovation: China’s National Science and Technology Major Projects budget could
rise above the current level of around USD 3 billion per year and include moreenergy-related projects.
Japan’s proposed Green Innovation Fund would allocate around USD 19 billion to
low-carbon energy technology demonstration between 2021 and 2031,
complemented by USD 15 billion in tax credits for private involvement in suchprojects. In the United States, the American Jobs Plan proposes USD 35 billion
for energy technology development over eight years, including a new initiative(ARPA-C) to develop innovative approaches to reducing atmospheric greenhouse

PAGE | 50

IEA. All rights reserved.

gas levels and USD 15 billion for demonstration projects for climate R&D priorities.

World Energy Investment 2021

R&D and technology innovation

In total, we estimate that over USD 50 billion of public funds could be available formajor demonstration projects of large-scale low-carbon energy technologies up to2030, including CCUS and other technologies for addressing emissions inindustrial sectors. In additional to announcements from China, Japan and theUnited States, this includes the USD 10 billion EU Innovation Fund, which has
already issued calls for large projects, plus funding announcements for CCUS
projects in Norway and the United Kingdom.
Another source of optimism for the innovation needed to power clean energy
transitions is the observed resilience in 2020 of early-stage venture capital (VC)
funding for low-carbon energy technologies. Contrary to concerns at the start ofpandemic, start-ups seeking to launch their first products onto the market
continued to attract finance almost at the same rate as in 2019, and this has
continued in early 2021. Investors appear to remain confident that new energy
technologies will continue to play a disruptive and profitable role in the energy
sector over the next decade. Although the USD 3.5 billion that was invested inearly-stage energy VC globally in 2020 is considerably less than investments inclean energy assets – and even corporate R&D spending – it has matured to
become a mainstream option for allocating capital to sustainable energy.

Government spending on energy R&D
A clear trend towards higher spending by governments
on low-carbon energy R&D
Preliminary information indicates that global public energy R&D spending,including on demonstration projects, rose slightly, by around 2% to USD 32 billion
in 2020, confirming that previously committed public budgets were resilient during
the crisis. This slow growth continues the slowdown noted for 2019 and stands incontrast with growth rates of 7-10% in 2017 and 2018. However, while the growthrate for R&D spending on all energy technologies remains stubbornly sluggish,
the portion of spending dedicated to low-carbon energy R&D has grown somewhat
faster and its share has risen consistently, from around 77% in 2015 to 83% in
2020. As the share of fossil fuel energy research has declined in many advanced
economies in recent years, China has come to represent more than half of the

PAGE | 51

IEA. All rights reserved.

global total for fossil energy public R&D.

World Energy Investment 2021

R&D and technology innovation

Billion USD (2019)

Spending on energy R&D by national governments

35

Rest of world

30
Japan, Korea, Australia,
New Zealand

25
20

Europe15
North America

10
5

China
2015

2016

2017

2018

2019

2020
IEA. All rights reserved.

Note: R&D includes spending on demonstration projects (i.e. RD&D) wherever reported by governments as defined in IEA(2011). 2020 is a preliminary estimate based on data available by mid-May 2021. The IEA Secretariat has estimated US
data from public sources. State-owned enterprise funds comprises a significant share of the Chinese total, for which apreliminary 2020 estimate based on reported company spending and early analyst signals will be revised once official data
are available. Other countries not part of the IEA RD&D statistical sharing exercise in 2019 and 2020 have been estimatedfrom public sources and exchanges with government officials. The 2018 value is higher than that shown in World Energy
Investment 2020, following a data revision, including the addition of spending by the Japanese Ministry of Environment.
Source: IEA (2021).

Several years of growth in most major regions shows that key governments areactively increasing energy research investments, following their 2015 pledges todouble selected areas of clean energy R&D funding as members of Mission
Innovation. Membership of Mission Innovation has motivated Brazil to join the IEA
research, development and demonstration (RD&D) statistical sharing exercise in
2021 as the first non-IEA country member, improving the quality of this year’s data.
The US energy R&D budget rose by 7% for the second consecutive year, setting
an annual average growth rate of 6% between 2015 and 2020. Energy efficiency
R&D funding, up 90%, and nuclear energy R&D funding, up 45%, have grown thefastest over this period, while the budgets for hydrogen and fuel cells, whichshrank up to 2017, are firmly on the rise again. Recent announcements signal
growth in all energy areas in the coming years, though patent data indicate a
relative technological advantage for the United States in fossil fuel, CCUS andcombustion efficiency (EPO and IEA, 2021). Canada, Denmark and Sweden allreported double-digit growth for public energy R&D spending in 2020, while
Germany grew more slowly, at 2%, and the government energy research spendingof China. Japan and the European Commission declined slightly. In the case of

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the latter, this reflects the volume of calls issued in 2020 under its multiannualWorld Energy Investment 2021

R&D and technology innovationbudget. In May 2021, China confirmed that clean energy will be among the first
focus topics of a new competitive process for R&D funding under the 14th Five
Year Plan.
There remains some uncertainty over how public energy R&D spending will fareas government budgets recover from the pandemic. However, it is expected thatthe impact of stimulus spending on large-scale demonstration projects in China,
Japan, the United States and Europe will boost the aggregate global value incoming years. At the same time that demonstration projects receive more
prominence among research funders, there is also an increasing appetite among
governments for diversified policy support, including the use of public
procurement, incubation and prizes for entrepreneurs to induce and nurture
inventions in companies and research institutes. Such policy experimentation,
coupled with evaluation and good-practice sharing, can enhance the impact ofgovernment spending, as can other forms of international co-operation. It is of
critical importance that governments take the lead in stimulating innovation at allstages from lab to market in sectors where emissions reductions will be hardest(IEA, 2020a).

Corporate energy R&D spending
Private-sector energy R&D spending dropped in 2020
due to lower corporate budgets and underspending on
projects, and now needs to pick up
Company research spending in energy-related fields fell by around 2% in 2020,
with around USD 89 billion tracked by our analysis of listed companies in theenergy sector and related sectors. While the impact of Covid-19 on othercomponents of energy innovation spending remains unclear, a reduction incorporate R&D was widely expected as companies faced reduced revenues.
However, R&D budgets tend to suffer less than capital investment budgets whenrevenues drop, and in 2020 the R&D ratio (R&D spending divided by revenue)
remained broadly constant across the major energy sectors. This is consistent
with a strategic incentive to retain R&D staff and capabilities and complete ongoingprojects, so as not to weaken a source of long-term competitiveness.
Consequently, the level of corporate energy R&D did not fall far below 2018 levels
and, so far, it appears to be a dip in a steady growth trend rather than a break in
the trend. Nonetheless, this dip has opened up a large gap relative to the pre-PAGE | 53

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pandemic trend line that would have risen above USD 100 billion in 2021.

World Energy Investment 2021

R&D and technology innovation

Billion USD (2019)

Spending on energy R&D by globally listed companies, by sector of activity

100

Other
Nuclear80

Batteries, hydrogenand energy storage
Renewables

60

Thermal power andcombustion equipment
Electricity generation,
supply and networks
Oil and gas

40
20

2015

2016

2017

2018

2019

2020

Automotive
IEA. All rights reserved.

Notes: “Other” comprises coal mining, coal distribution and certain energy efficiency technologies that can be isolated fromend-use sectors, such as insulation. Fuel cells are included with hydrogen. Corporate energy R&D spending includes
reported R&D expenditure by companies in sectors that are dependent on energy technologies, including energy efficiency
technologies where possible. Automotive includes technologies for fuel economy, alternative fuels and alternative
drivetrains. To allocate R&D spending for companies active in multiple sectors, shares of revenue per sector are used in
the absence of other information. Classifications are based on the Bloomberg Industry Classification System. All publicly
reported R&D spending is included, though companies domiciled in countries that do not require disclosure of R&D
spending are underrepresented. Depending on the jurisdiction and company, publicly reported corporate R&D spending
can include capitalised and non-capitalised costs, from basic research to product development. The total reported here for2019 is higher than that estimated at the time of publication of World Energy Investment 2020, before all company filingsfor 2019 were available and before the latest adjustment of sectoral classifications. Spending by oil and gas companies
represents the most significant upward revision, USD 1 billion.
Source IEA calculations based on Bloomberg (2021).

Corporate R&D spending was lower in 2020 than in 2019 in some of the largest
energy technology areas, with the reductions occurring in electricity generationand networks (-6%), automotive (-3%), thermal power and combustion
equipment (-3%) and oil and gas (-2%), In the oil and gas sector, higher spending
in China offset declines at European and US companies. However, for thelargest firms in each of these areas, R&D spending did not generally decline as
fast as revenues. Automotive companies drove much of the increase in energy
R&D up to 2018 – in particular through expanded EV development, but they have
had little growth in 2019 and have fallen back below 2018 levels. Given that firms
are likely to remain cautious with budgets in 2021, this trend may be misalignedwith companies’ electrification plans as well as the need for fuel economy
improvements to accompany the shift to larger vehicles (see “Energy end-use
and efficiency” section). Spending by companies focused on renewables and

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nuclear equipment was more resilient and continued to increase.

World Energy Investment 2021

R&D and technology innovation

On a country and regional basis, US-based companies reduced their energy
R&D spending most in 2020, with a cut of nearly 10% from the aggregate
amount, followed by European companies at -7%. Japanese companies, manyof which have a long-standing tradition of investing in research projects, often insupport of government objectives, increased R&D spending increasing by 1% in
2020, while Chinese company energy R&D spending rose even faster, by 3%.
Since 2019, listed companies from China have outspent those in our sample
from other countries.
Looking beyond spending on energy technologies to consider total R&D fundingof companies in some other critical sectors for the energy transition, the impactof the pandemic is less apparent. Aggregated spending on R&D by companies
in the cement and steel sectors rose slightly in 2020, and it was broadly stable
among companies in aviation and shipping. As with the automotive sector ingeneral, however, the R&D combined budgets of companies producing trucks
and commercial vehicles and their components fell by 5% in 2020 compared to
2019.

Venture capital funding of early-stage energy
technology companies
The pandemic has not curbed investor appetite for clean
energy start-ups
Although clean energy start-ups continued to attract high levels of investment
through the Covid-19 crisis, the market lost momentum in the first half of 2020.
Early-stage VC investments decreased in 2020 relative to 2019, falling to
USD 3.5 billion. These sums are far lower than those spent on energy R&D by
governments and companies, but this private-risk capital plays an important role.
It enables market creation and scale-up of technology propositions that have aclear near-term value proposition, especially those that do not require high levelsof upfront development and capital. The value of large, outlier deals in 2020 was
much lower than in recent years, with a complete absence of the billion-dollar
early-stage deals in electro-mobility that increased the totals in 2016-19. When
excluding large deals of above USD 150 million in a single deal the total wasaround USD 3.1 billion worldwide, well above the levels of 2012-18.
Furthermore, the total number of deals, including those for which no financial

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data is available, jumped by 17% in 2020. Europe continued to increase its share

World Energy Investment 2021

R&D and technology innovationof global investment in early-stage energy start-ups, with its total deal value
almost doubling in 2020, offsetting declines in the two other major markets ofChina and the United States.
The recovery of investment in the second half of 2020 has continued into the firstquarter of 2021, for which preliminary data indicate a record quarter for earlystage energy VC deals. This has been led by energy storage and hydrogen startups in the United States and Europe, as well as several large funding rounds in
China for battery developer Svolt and electric vehicle company Leap Motor.
This recovery demonstrates not only that start-ups and investors adjusted
successfully to new ways of working in the second half of 2020, but it also
demonstrates two larger trends. First, tech stocks are viewed as a haven for
capital due to the turmoil in more traditional sectors, with Tesla continuing toblaze a trail for others. Second, investors are increasingly convinced that energy
transitions are happening and will be underpinned in the near term by proactive
government policies and robust corporate demand. Rather than dealing asignificant blow to the promising pipeline of low-carbon energy technology
entrepreneurs, 2020 is more likely to be remembered as a year of stronger
momentum for venture investment in low-carbon energy, with the proliferation ofcompanies going public through special-purpose acquisition companies
demonstrating appetite for start-ups. In addition, more risk-averse investors,
including institutional investors, are now including clean energy VC exposure in
their portfolios. This shift towards more investor appetite for providing risk capitalto early-stage energy technology companies is a significant development.
However, its impact depends on the pace at which the supply of high-potential,
scalable ideas from research can rise, especially from publicly funded labs and

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projects.

World Energy Investment 2021

R&D and technology innovation

Billion USD (2019)

Global early-stage venture capital investments in clean energy technology start-ups

4

Conventional fuels
Other low-carbon

3

Energy storage andhydrogen

2

Energy efficiency

1

Renewables

2010

2012

2014

2016

2018

2020

Low-carbon
transport

Notes: Includes seed, series A and series B financing deals. Outlier deals of more than USD 150 million that distort the
year-on-year trend are excluded from the deal value; they totalled USD 4100 million in 2010, USD 2.2 billion in 2016,
USD 850 million in 2017, USD 4.7 billion in 2018, USD 990 million in 2019 and USD 340 million in 2020. Low-carbon
transport includes alternative powertrains and their infrastructure, among other technologies, but not shared mobility,
logistics or autonomous vehicle technology unless specifically designed for the electric mobility market. Within
Renewables, bioenergy includes transport biofuels but not biochemicals. Other low-carbon pertains to CCUS and smart
grids. Conventional fuels covers fossil fuel extraction and-use, fossil fuel-based power generation, and conventionaltransport fuel economy.
Source: IEA calculations based on Cleantech Group (2021).

Nevertheless, the late-2020 rebound does not compensate for the slower start tothe first half of the year. When excluding large, outlier deals, the average disclosed
deal value for early-stage start-ups was around USD 7 million, which is 17% lessthan in 2019. Although the number of deals increased by 10%, investors allocatedless capital to each one. In some cases, investors may have been less willing to
put capital at risk, while in others, they may have taken the opportunity to invest
at lower valuations. For energy storage and hydrogen start-ups, the average valueof disclosed deals dropped by 5%, as newer technology areas suffered more thanincremental improvements to existing ones such as EV chargers. In 2021,
governments have the chance to shift from defensive and non-selective measures
to counter the worst of the pandemic’s impacts, to actively supporting innovationin target technology areas (IEA, 2020b).
Corporate VC investment provides another sign of the relative health of clean
energy technology innovation in contrast to spending cuts elsewhere in the energy
system. Similarly to corporate energy R&D, which dipped in 2020, corporate
investments in energy technology start-ups, including corporate VC, decreased by
10% in 2020, to USD 5.2 billion, but remained significantly above 2012-18 levels.
Large corporations see a strategic case for direct investment in innovative, nimble

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technology players that they can learn from in the short-term and possibly acquireWorld Energy Investment 2021

R&D and technology innovationin the future. However, traditional energy actors (i.e. fossil fuel companies, utilities,
independent power producers, energy equipment and services) have consistently
accounted for a decreasing share of these corporate investments in recent years,
dropping to just below 15% in 2020. Investments from oil and gas companies fell
most in 2020, by 65%.
In contrast, investments by companies in the transport sector more than doubled,
and the combined investments of companies in the information andcommunication technology and transport sectors represented 80% of the total. In
fact, were it not for a few large growth-stage deals from these sectors – such as
General Motors’ investment of USD 1.9 billion in Nikola Motors and investments
by Alibaba, Amazon, Baidu and Tencent in Evergrande, Rivian, WM Motor andXPeng – corporate VC in energy would have declined in 2020.

Implications
Accelerating innovation cycles to meet net-zero goals
will require more stimulus funding, broad collaboration
and a push to catalyse private investment at scale
New and better technologies will be crucial to tackle climate change and otherenvironmental problems associated with energy use, alongside the adoption ofexisting advanced technologies. Technological innovation has the potential toreshape or entrench the competitive positions of different fuels and energy
sources. In this way, it will play a key role in determining the stringency and costsof the policy options for accelerating energy transitions. As indicated by our review
of corporate VC trends, this innovation will come from both within the energy
sector and from other sectors, as well as fundamental scientific advances.
Success will depend on nurturing these linkages, boosting funding forentrepreneurs and R&D projects and investing in enabling infrastructure and fixed
assets.
The higher levels of attention that clean energy innovation is currently attracting
are essential given the urgency of the challenge. Acceleration of innovation cycles
to meet net-zero goals will require close cooperation among universities, research
institutions, companies, governments and the finance sector, as well as more welltargeted public and private spending on R&D and support for early-stage scaleup.
Taking the example of much-needed commercial-scale demonstration projects in

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key sectors, the IEA estimates that USD 90 billion in public funding needs to beWorld Energy Investment 2021

R&D and technology innovation

mobilised as soon as possible to complete a portfolio of demonstration projects
before 2030 (IEA, 2021c). This compares with the roughly USD 25 billion alreadybudgeted by governments to 2030, which (as discussed above) could expand tosome USD 50billion based on recent announcements.
The technologies concerned – mostly related to electrification of end-uses, CCUS,
hydrogen and sustainable bioenergy, e.g. for long-distance transport and heavy
industrial applications – need to be quickly demonstrated at scale in multiple
configurations and regional contexts, in most cases requiring projects to run inparallel. This is in stark contrast with typical practice in technology development,
where learning is transferred across consecutive demonstration projects indifferent contexts to build confidence before widespread deployment commences.
Public funding would assume the risks of such first-of-a-kind projects and leverage
private investment. However, increased public funding on this scale would
represent a departure from recent trends: government spending on energy R&D
worldwide, including demonstration projects, has been falling as a share of GDP,

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from a peak of almost 0.1% in 1980 to just 0.03% in 2019.

World Energy Investment 2021

Annex

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Annex

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This publication has been produced with the financial assistance of the European Union as part of the Clean Energy
Transitions in Emerging Economies program. This publication reflects the views of the International Energy Agency (IEA)
Secretariat but does not necessarily reflect those of individual IEA member countries or the European Union (EU). Neither
the IEA nor the EU make any representation or warranty, express or implied, in respect to the publication’s contents(including its completeness or accuracy) and shall not be responsible for any use of, or reliance on, the publication.
The Clean Energy Transitions in Emerging Economies program has received funding from the European Union’s Horizon
2020 research and innovation program under grant agreement No 952363.
This publication and any map included herein are without prejudice to the status of or sovereignty over any territory,
to the delimitation of international frontiers and boundaries and to the name of any territory, city or area.

IEA (2021), World Energy Investment 2021, All rights reserved.
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