Investing in renewable energy

The renewables industry is on track to knock out coal as the largest source of electricity generation by early 2025

Cows and wind turbines at La Penuca Spain

Scotland wants to parlay its title as the windiest country in Europe into another distinction: global offshore wind powerhouse. Its ambitions will get a boost from projects like West of Orkney, a massive wind farm set to rise from the seas off the north of Scotland by the end of the decade. Its developers say that, once operational, West of Orkney will produce enough electricity to power 2 million homes and help make Scotland a leader in offshore wind technology.

Renewable energy projects are being developed from Queensland to Gujarat. As the collective effort to reduce carbon dioxide (CO2) in the atmosphere accelerates, the International Energy Agency (IEA) expects the world to add as much renewable power in the 2022-2027 period as it did in the previous 20 years. That will knock out coal as the largest source of electricity generation by early 2025, far sooner than the IEA was predicting a decade ago.

Experts say the world needs to add renewable energy at an even faster clip if the world is to reach net zero by 2050. In this report, we look at investments to scale renewable energy and to help address some of the challenges involved in expanding its use.

countries covering almost 80% of global emissions have adopted net-zero targets ¹

of the world’s population lives in countries that are net energy importers ²

_{¹Source: United Nations Emissions Gap Report 2022 ²Source: IEA}

Four trends driving demand for renewable power

Bolder climate ambitions

As the planet warms and extreme weather events multiply, the sense of urgency around tackling the climate crisis has increased. Global actors ranging from national governments and cities to businesses are embracing bolder climate ambitions. At the heart of these ambitions is the transformation of the global economy from one mainly powered by fossil fuels into one in which renewables dominate and electricity powers more human activities.
A heightened focus on energy security

Russia’s invasion of Ukraine, in addition to creating significant human impacts, sent energy prices soaring and upended energy markets. It also refocused the world’s attention on energy security in a way not seen since the oil crisis of the 1970s. That was especially evident in the European Union, which was highly dependent on Russian oil and gas and already looking to make its energy supplies more sustainable. Some countries responded with initiatives that hindered their energy-sustainability goals in the short term, such as restarting coal-fired power plants. In the medium to long term, concerns about energy security will heighten investment in renewables—and some of that change is already happening.
The rise of climate-centric industrial policy

The world’s largest economies are looking to bolster their economic and technological independence by remaking trade relationships and nurturing industries they deem strategic. The trend started with China’s Made In China 2025 policy, a sweeping plan first unveiled in 2015 to reduce China’s dependence on foreign technology and to develop advanced manufacturing in 10 priority sectors. The U.S. Inflation Reduction Act and the European Union’s Green Deal Industrial Plan are other recent examples of large-scale policy seeking to attract major investment in domestic manufacturing. All these plans prioritize the development of clean-energy technologies. Countries are using tax credits and direct investment to advance their climate goals and improve their competitiveness. The renewables sector is set to shine in this era.
The improving cost-competitiveness of renewable power

For many years, it was cheaper to produce electricity from fossil fuels than from renewable energy sources. But as the cost of solar panels and wind turbines declined and the installed capacity of renewables increased, the cost of producing power from renewable sources fell sharply over the last decade. In many jurisdictions, producing power from renewables is cost-competitive with generating power from fossil fuels. That’s not to say there won’t be other costs associated with ensuring that a global energy system that’s more dependent on renewables continues to provide reliable power. Those costs include investment in energy storage and other technologies to manage the intermittency of renewable power.

Renewable energy global investment snapshot

Investment in renewables is rising

Global spending on renewables hit a record of almost US$600 billion in 2022, the IEA says. That was a significant share of the US$1.6 trillion invested in clean energy overall.

The increased spending came amid the financial pressures of the post-pandemic era, including higher inflation, rising interest rates and economic volatility, and strong returns for fossil-fuel investments.

While investment in fossil fuels remains robust—the IEA estimates it will top US$1 trillion in 2023—clean energy is drawing even larger investment. The agency estimates that overall investments in clean energy will top US$1.7 trillion in 2023, with almost 40% of that spent on renewables.

Investment in renewables is concentrated

Investment in renewables has largely been concentrated among major economies with large populations and relatively high emissions—and their investment in scaling renewables is key to the global energy transition.

Major climate-centric industrial plans will likely continue to attract an outsize share of investment dollars to relatively few countries. This concentration of clean-energy supply chains could complicate efforts to ensure a broad-based energy transition.

Spending has been concentrated in certain technologies, notably solar photovoltaic and onshore wind power. Investment in a wider range of technologies will be needed to ensure global energy systems are flexible and resilient, and that the world remains on track to decarbonize by 2050.

We recognize the incredible effort and investment that will need to go into rebuilding the world's electricity and infrastructure. We have built a team that has broad experience across geographies and types of renewables and really understands how to invest in this sector.

Chris Ireland

Senior Managing Director, Greenfield Investments & Renewables, Infrastructure & Natural Resources

Ontario Teachers’ investments in renewable energy

The transition to a world mainly powered by renewables will require massive investment. To expand proven technologies like solar and onshore wind. To scale offshore wind, a highly reliable form of renewable energy. To develop less mature but promising technologies which can build resilience into global energy systems. And to ensure that both developed and emerging markets benefit from renewables investment.

Here is a look at some of our efforts around expanding renewable energy.

Harnessing the advantages of offshore wind

Because offshore winds are strong and consistent, offshore wind power is considered highly reliable, making the growth of offshore wind energy capacity critical to helping the world reach net zero. But investment in offshore wind capacity has lagged behind investment in onshore wind. That’s because developing offshore wind is more costly and technically challenging.

Technical advancements are changing the outlook for offshore wind. Turbines have gotten bigger and more efficient, and their cost has declined. With the development of floating foundations, they can be installed in deeper waters, making more locations accessible to development.

Decoupling economic growth from emissions growth

The remarkable growth of certain developing economies, such as China and India, has lifted millions out of poverty. But that enviable economic progress has come at a cost: higher emissions. China’s, for instance, have tripled since 1990, according to research firm Rhodium Group. That’s a warning signal for the collective effort to limit global warming.

Expanding renewable energy in developing countries will be essential if they are to grow sustainably. The IEA says the private sector will play a major role in mobilizing clean-energy investment in these countries. Annual renewables investment in emerging and developing economies must rise at least sevenfold by the end of this decade to prevent a surge in emissions from these countries, it warns.

A conversation with David Swindin

The CEO of Cubico Sustainable Investments, which has a diverse portfolio of renewable energy and transmission assets across 12 countries, shares insights on how the renewables sector has evolved and some of its challenges and opportunities.

Read the Q&A

Tackling the intermittency challenge to scale renewables

Fossil-fueled power has endured partly due to its on-demand nature; it’s there when it’s needed. By depending on weather conditions, renewable energy sources like solar and wind power aren’t constantly available.

Cracking this intermittency challenge will be essential if the world is to wean itself off fossil fuels while still enjoying the economic and social benefits and comforts of easily dispatchable power. Solutions exist—including pumped hydropower storage and grid-scale battery storage—but they will need to be further scaled to ensure the grid remains stable as more renewables are brought online.

Unlocking hydrogen’s potential

Hydrogen is the most abundant element in the universe. Here on earth, it’s found in compound form (with other elements) in sources that include natural gas, coal, water, and biomass. Once separated from those sources, hydrogen is a versatile energy carrier with a number of advantages. It doesn’t produce CO2 when burned, and it has significant potential to decarbonize emissions-intensive sectors such as steel and chemical production and long-haul transportation. Hydrogen can also be stored in large amounts and for extended periods before being transformed into electricity.

Today, hydrogen is mostly produced from fossil fuels for use in heavy industry. To unlock its decarbonization potential, the world will have to produce more hydrogen from the electrolysis of water, using renewable electricity. At present, that’s very expensive. Scaling up green hydrogen will require investment in technologies like electrolyzers as well as abundant and affordable renewable power.

The promise of renewables

Expanding renewable energy will have many benefits, from reducing air pollution and mitigating climate change to creating millions of skilled jobs. The sector’s growth is poised to bring a measure of energy independence to countries that historically relied on others for their energy supplies. Indeed, renewable energy has the potential to support widespread prosperity in a way that fossil fuels have not. That’s because renewable energy sources are plentiful, can be deployed at almost any scale, and lend themselves to decentralized forms of energy production and consumption. The International Renewable Energy Agency calls this the “democratizing effect” of renewable energy.