Global low-carbon projects spending set to rise by $60bn this year as inflation eases

Investment in carbon capture and storage, hydrogen and the geothermal, hydroelectric, wind, nuclear and solar energy industries is set to hit $620bn in 2023

Wind turbines in Maine, the US. Investment in wind energy projects is expected to pick up this year. AP

Spending on low-carbon projects around the world is set to increase by 10 per cent in 2023, or by about $60 billion, as investments in wind energy projects pick up pace, Norway-based Rystad Energy has said.

A significant rise in funding for hydrogen and carbon capture, utilisation and storage (CCUS) infrastructure will also help to boost spending on low-carbon energy projects, the consultancy said in its report on Friday.

The cumulative investment across CCUS, hydrogen and the geothermal, hydrogen, hydroelectric, offshore and onshore wind, nuclear and solar energy industries is set to hit $620 billion in 2023, from about $560 billion in 2022.

However, the growth in total spending is slower than the average increase of about 20 per cent on an annual basis as “cost-conscious developers tighten their purse strings” after two years of inflation.

“The weaker-than-expected growth is not a reason to panic for those in the low-carbon sector,” said Audun Martinsen, head of supply chain research at Rystad Energy.

“Rampant inflation typically triggers fiscal restraint across industries, and spending will likely bounce back in the coming years.”

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

The rise in global inflation, which drove central banks around the world to raise interest rates, pushed the cost of construction higher and inflated the prices of raw materials for components used in low-carbon and renewable energy projects.

In the US, inflation has now started to ease, dropping from a four-decade high after the Federal Reserve aggressively raised its policy rates last year.

Inflation has yet to significantly retreat in Europe and the UK.

Investment in the renewables sector surged 21 per cent in 2022 to overtake related oil and gas spending for the first time, as high power prices prompted countries to further diversify their energy mix.

However, “inflation-spooked developers seem set to rein in spending growth this year”, Rystad said on Friday. “As inflationary pressure weakens; we expect spending to rebound.”

Spending on the solar sector will rise to $250 billion, a 6 per cent annual increase.

“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,” the Rystad report said.

“Despite a relatively insignificant rise in investment value, installed capacity is expected to swell by roughly 25 per cent to 1,250 gigawatts.”

The hydrogen and CCUS sectors are expected to have the most significant annual increase, growing by 149 per cent and 136 per cent, respectively.

Total hydrogen spending will touch $7.8 billion in 2023 while CCUS investments will total about $7.4 billion, according to Rystad data.

However, the hydroelectric power market is expected to shrink, compared with 2022 investments, while nuclear spending is forecast to stay flat.

Onshore wind investments are projected to increase by 12 per cent to about $230 billion while investment in offshore wind projects is expected to jump 20 per cent to $48 billion.

Expenditure in geothermal energy is set to rise by about 45 per cent, although from a relatively low starting position, the research consultancy said.