Low carbon investment to hit $620 billion in 2023- Rystad Energy

Investments in the geothermal, carbon capture, utilization and storage (CCUS), hydrogen, hydropower, offshore and onshore wind, nuclear and solar industries are set to hit $620 billion in 2023, up from about $560 billion last year, according to Rystad Energy.

According to the energy research firm, low-carbon investments will rise by $60 billion in 2023 as inflation weakens; hydrogen and CCUS spending to surge.

“Spending on low-carbon projects will increase by $60 billion this year, 10 percent higher than 2022, led by wind developments but helped by a significant rise in funding for hydrogen and carbon capture, utilization and storage (CCUS) infrastructure,” Rystad Energy research shows.

“The growth in total spending is a slowdown from recent years – which averaged 20 percent annual increases – as cost-conscious developers tighten their purse strings after two years of soaring prices.”

Rystad Energy also said investments in green sectors surged 21 percent in 2022 to overtake related oil and gas spending for the first time, but inflation-spooked developers seem set to rein in spending growth this year.

“However, as inflationary pressure weakens, we expect spending to rebound. Service segments included in our calculations include project equipment and materials, engineering and construction, wells, operations and maintenance, and logistics and vessels,” the report noted.

“Solar and onshore wind will contribute the most by a sizable margin. Spending on solar investments will total $250 billion this year, rising only 6 percent over 2022,” Rystad Energy said.

“However, thanks to the falling cost of polysilicon, the primary cost driver of solar PV cells, capacity growth will be more substantial than dollar investments suggest. Despite a relatively insignificant rise in investment value, installed capacity is expected to swell by roughly 25 percent to 1,250 gigawatts (GW).”

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Rystad also said spending growth will vary widely across industries. Hydrogen and CCUS are expected to see the most significant annual increase, growing 149 percent and 136 percent, respectively. Total hydrogen spending will approach $7.8 billion in 2023, while CCUS investments will total about $7.4 billion.

In contrast, the hydropower market is expected to shrink over 2022, while nuclear investments are forecast to stay relatively flat. Onshore wind investments are projected to increase by 12 percent to about $230 billion, while offshore wind spending is expected to jump 20 percent to $48 billion.

The energy research firm added that expenditure in geothermal is expected to jump significantly – about 45 percent– albeit from a relatively low starting position.

“The weaker-than-expected growth is not a reason to panic for those in the low-carbon sector. Rampant inflation typically triggers fiscal restraint across industries, and spending will likely bounce back in the coming years,” said Audun Martinsen, head of supply chain research, Rystad Energy.

“The outlook for hydrogen and CCUS is especially rosy as technology advances, and the large-scale feasibility of these solutions improves.”

According to Rystad, low-carbon investments are more short-cycled than the fossil fuel industries and are, therefore, more sensitive to inflationary pressures. Project plans, permitting activity and awards from companies and governments indicate this year’s expected investment growth.

Based on likely activity, investments for each project were calculated based on specific characteristics and where we forecast unit prices across 2023, Rystad Energy said.

Looking at the individual segment types, operations and maintenance companies will achieve the most growth this year by 16 percent, the energy research firm said.

“These companies are more exposed to the overall installed operational capacity, which will grow this year at a similar pace to 2022, with last year’s additions entering their first full year of operations,” it said.

The firm also said that logistics and vessel companies, heavily weighted towards offshore projects and marine trade, are estimated to take in 15 percent more this year.