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Global renewable energy capital expenditure is set to increase
14% in the five years ending 2025, compared with spending in the
2015-2019 period, according to IHS Markit. At the same time,
overall global energy sector capex is set to decrease 8%, research
published in January shows.
Renewables' share of energy sector capex will average about 20%
over the forecast period, in line with 2020 levels, but an increase
of 4 percentage points compared with 2015-2019.
"The renewables investment boom is reshaping the global power
landscape. We expect combined global wind and solar PV installed
capacity to surpass global installed natural gas-fired capacity in
2023 and coal-fired capacity in 2024," said Roger Diwan, IHS Markit
vice president, research and analysis, adding that cost deflation
is super-charging that boom.
"Policy choices in the near term can boost these
numbers. Countries and companies are accelerating
their renewables ambitions, often anchored in net-zero emission
targets, and a number of key countries are likely to focus
post-COVID crisis spending on new green initiatives," said Diwan,
one of the analysts behind the research.
In 2021-2025, IHS Markit expects global energy sector capex to
nudge slightly higher than 2020 levels, reaching around $1.3
trillion/year over the period.
The decrease in overall capex in 2021-2025 relative to 2015-2019
is predicated on a slump in spending across the fossil fuel sector,
with investment in the upstream and downstream oil and natural gas
sectors, coal mining, and fossil fuel-fired power generation (coal
and gas) in the 2021-2025 period declining 20% compared with
2015-2019 levels, according to the analysis.
With renewable generation and related industries becoming more
attractive than the oil and gas sector for investors, the energy
transition is poised to speed up, a trend illustrated by stock
market valuations.
Over the past five years, the stock price of Florida-based
generator and utility owner NextEra Energy has trebled to more than
$80/share. Its market capitalization is now above $160 billion,
surpassing ExxonMobil's at one point in 2020. Although ExxonMobil
re-asserted its position as the US' largest energy company in
recent months, with its share price hovering either side of $50 in
recent days after falling below $32 in late October, that is still
just over half the $95 valuation seen in July 2016 and nearly $90
as recently as January 2018.
Fossil fuel demand is estimated to have dropped by about 7% in
2020 compared with 2019, with oil demand alone falling 10%,
according to IHS Markit data.
The upstream sector's spending capacity will be further
constrained by the trend towards environmental, social and
governance (ESG) investing and tightening regulations around
climate risk, according to the analysis.
Conversely, the wind behind the sails of the renewable sector is
not dropping. IHS Markit saw resilient spending in the sector in
2020, even as the coronavirus pandemic jettisoned normality across
the globe and financial markets in particular.
IHS Markit expects global non-hydro renewables investment
totaled around $257 billion in 2020, roughly 2% above 2019 levels.
As a result, non-hydro renewables capex as a share of total energy
spending is expected to have risen to an all-time high of 20% in
2020, up from roughly 18% in 2019, and just 14% in 2015.
With cost deflation factored in, this represents a 9% increase
in capex in 2021-25 compared with 2015-19 will translate into a 45%
jump in renewable capacity additions, Diwan said.
Still, the picture is not all gloom and doom for hydrocarbon
producers, with stronger-than-expected oil and gas investment in
the near-term remaining plausible, especially as a price increase
to the $60-$70/bbl range for Brent in 2023-2024 is possible, the
analysts say.
The extent of the potential capex upside boils down to the rate
of US onshore spending growth, whether majors and diversified
international oil companies use revenues to fund dividends and debt
or portfolio transitions, and the medium-term expansion or
retrenchment of national oil companies, they say.
