Global bank financing for low-carbon energy rose 15 percent to $550 billion in 2022
Energize Weekly, March 8, 2023
Investments in low-carbon energy supply rose by 15 percent in 2022 – the fastest growth rate in seven years – to $550 billion, according to BloombergNEF’s (BNEF) annual report on energy transition investment trends.
Investments in clean energy, not including electric grid funding, are close to dollar for dollar with fossil-fuel investments, although a “bounce” in fossil investments is expected to counter disruptions caused by the Russian invasion of Ukraine.
Still, BNEF said “the underlying economics of low-carbon energy supply mean its growth will be sustained.”
While low-carbon investments are generally matching fossil-fuel investments, BNEF calculated that those investment would have to rise sharply – to a 4 to 1 ratio – to meet a scenario in which global temperatures rise no more than 1.5 degrees Celsius, the Paris Climate Accord goal.
“This means that in 2030 for each dollar invested in fossil-fuel energy supply, at least four would need to be invested in low-carbon energy sources,” the report said.
In 2021, the 30 largest global banks – banks consider too big to fail by the international Financial Stability Board – underwrote $1.1 trillion in energy supply transactions with $499 billion for low-carbon projects and $581 billion for fossil fuels for a ratio of 85 cents for clean energy to $1 for fossil fuels.
The total energy financing across all 1,142 banks surveyed by BNEF was $1.9 billion with a low-carbon to fossil-fuel Energy Supply Banking (ESB) ratio of 0.81.
Most of the funding is in the form of bonds, corporate loans, and green debt, which is designated specifically for clean-energy projects. Financing was extended about 15,000 companies with energy sector revenue.
A total of 585 banks were active in debt underwriting, 316 in equity underwriting and 443 in project financing.
Bank financing mainly goes to companies and projects in North America, China, and Europe.
The investment ratio varies among these regions with North America and China both having an ESB ratio of 60 cents and Europe at $2.60 in clean-energy financing for every $1 for fossil fuels.
North America saw $655 billion of energy supply financing in 2021, with $244 billion in low-carbon projects and $411 billion for fossil fuels. “This reflects the U.S., Canada, and Mexico’s major role in the supply of energy for domestic and export use,” the report said.
There was $422 billion of energy supply financing in China in 2021, of which $154 billon was for low-carbon energy and $267 billion for fossil fuels.
In Europe $385 billion of energy supply financing was weight toward low-carbon energy with $277 billion compared to $108 billion for fossil fuels.
“The relative paucity of oil and gas supply in Europe and the continent historically having the most favorable regulatory environment for low-carbon energy investment is reflected in its high ESBR,” BNEF said.
Asia Pacific, excluding China, saw $213 billion of energy supply financing in 2021, of which $98 billion was for low-carbon energy and $115 billion for fossil fuels for a roughly 0.8 to 1 ratio.
In Africa and the Middle East, investments were heavily weighted toward fossil fuels which received $95 billion in financing compared to $11 billion for low-carbon. Latin America and the Caribbean saw $65 billion of energy supply financing, with $24 billion directed to low-carbon energy and $42 billion to fossil fuels.
“There remains considerable uncertainty about the magnitude and composition of global energy investment required to achieve net-zero emissions,” John Moore, BNEF’s CEO, said in a forward to the report.
Moore said the report’s findings “shine a light on an area that has caused tension between key partners in the energy transition; they give a view on where the finance industry was in 2021.”