Financing the energy transition

The ‘decade of deployment’ is no longer in the future – it is already underway. The clearest way to see this change in action is in the hundreds of billions of dollars in direct investments and capital-markets transactions.

The continued evolution and acceleration of the energy transition has led to unprecedented investment of private and public capital. A close look at energy transition financing reinforces the complexity and uncertainty on the path to net zero, but the details of the deals are also beginning to reveal the shape of the deployment decade.

Capital is reshaping the landscape, and geopolitical shifts are driving market transformation, in some cases expediting clean technology adoption and in others reframing the focus on energy security and affordability. Tradeoffs between technology maturity, cost dynamics and emissions outlooks remain challenging for capital allocators and investors.

Energy transition financing has firmly shifted in scale and speed. Public equity markets, banks, and rapidly expanding private markets in total invested more than $500 billion in energy transition during 2023, with significantly more in announced investments. A large share of that funding is flowing into renewable power and early-stage or emerging technology assets, with the potential to change power sector utilities’ traditional ownership profiles. Supply chains, permitting and regulation have struggled to keep up with the growing queue of financed and planned projects.

Uneven flow of capital

Capital influx is advancing certain technologies more quickly than others. Battery deployment and manufacturing are accelerating sharply; carbon capture and storage lag by comparison. An S&P Global Commodity Insights analysis of transaction data showed 82% of private capital energy transition investment from August 2022-August 2023 was in electrification and renewable power deployment. Only 18% was in decarbonization technologies for heavy industry.

Capital is also flowing unevenly across economies and regions, with $8 of every $10 of renewable energy investment funding projects in developed economies and China, even as higher growth rates and shortfalls in energy supply make clean energy investment in the Global South more impactful. The annual global renewable energy investing gap may be as high as $700 billion.

Adding low-cost solar and batteries to grids and new manufacturing will take time to be fully reflected in existing business models and infrastructure. But energy and commodity markets are already optimized to match emerging supply with shifting demand. Market participants who stick to market fundamentals and transparent pricing methodologies are finding their existing skills and toolsets are well-suited to making investment decisions about energy transition opportunities.

New investment, enduring expertise

S&P Global is putting resources to work early by providing price indications for early-stage technologies and providing price assessments and benchmarks for markets poised for disruption.

This is a natural next step for businesses with a strong legacy of providing energy markets with new tools, expanded data and more actionable insights. S&P Global remains committed to expanding our coverage of areas including transition metals insights, power and renewable energy project data and portfolio tools, and price assessments for carbon markets and low carbon commodities.

This energy transition transformation may differ in scope and scale from major energy market reshaping events of recent decades, but the tools required to understand and adapt to it – transparency, reliable data and actionable insight – are fundamentally the same, both for legacy hydrocarbons and for those parts of the energy market where risks and opportunities are just beginning to emerge.

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