Our planet is on the cusp of irreparable environmental devastation. Environmentalists and agencies such as the International Energy Agency have been advocating for years that switching to renewable energy is the only way to peaceful and healthy survival.
The 26th United Nations Climate Change Conference which was held in Glasgow, Scotland, also emphasised curtailing the subsidies granted for coal and fossil fuels to low-income countries. However, no amicable consensus was arrived at on the above point. Even on “Finance Day”, global financial firms missed addressing the elephant in the room, the fossil fuels, and committing to cutting down, direct as well as indirect, investments in it. Despite, the world countries still being in a spilt as to how to address this age-old reliance on gas, coal, and gas, a few positive changes are witnessed in the foreign direct investment patterns globally.
After all these years, the second decade of the 21st century has set the tone for transformative and sustainable changes in the energy sector. This decade saw significant growth in the usage of renewable energy, displacing a centuries-long reliance on fossil fuels. Even the foreign direct investment in renewable energy grew at a promising growth rate worldwide.
In 2020, the capital investment in renewable energy stood at $8.72 billion, leaving behind oil and gas for the first time. The foreign direct investment in the renewable energy sector rose further by 10 per cent from the year 2019.
According to the fDi Report 2021, coal, oil, and gas-dependent energy industries have sunk to unfathomable lows. Foreign direct investment dropped by 61.2 per cent in this area, totaling $ 44.8 billion. This sector saw its lowest investment in 2020 after the year 2003. This must have brought a sigh of relief to scientists and environmentalists globally.
The increase in investment in 2021 can be partly attributed to the Paris Agreement, which has the entire world under one roof in a joint fight against climate change. The Member countries have solidified their commitment to limit global warming, which is one of the most vital goals of this Agreement.
Switching to renewable energy is one way to meet the Paris Agreement's goal of containing the rise in temperature below 2 degrees Celsius, which is the need of the hour.
The energy sector is at the heart of any country’s economic development. Therefore, the investment and innovation trends in this sector are paramount. Despite the damage caused to the climate, even today gas and oil are at the core of the energy sector, which is concerning.
The governments and industry players have recently comprehended the significance of the shift towards renewable energy sources. This is evidenced by the fDi Report 2021, which states that in the year 2020, the foreign direct investment in renewable energy has surpassed that in oil and gas.
The foreign direct investment projects showcased a similar trend. It was observed that the overall number of renewable energy projects globally was five times higher than the number of conventional energy projects, which are based on fossil fuels. The foreign direct investment projects in the conventional energy sector fell by 52 per cent, as per the fDi Report, 2021.
In recent years, many governments and private players have taken a vow to decarbonize their economies. Countries such as China, India, South Korea, the EU, Japan, and others have declared their intention to achieve net-zero emissions and have made substantial promises to do so. International oil corporations such as Shell, Chevron, BP, and others have also begun transitioning to renewable energy by investing heavily in this industry.
In 2020, the United States of America continued to be the magnet for foreign direct investment projects bagging the highest number of projects. It got close to 64 projects.
For the first time in the EU’s history, renewable energy became the primary source of power production in 2020. In the EU, foreign direct investment in renewable energy reached a new high of 67 per cent.
In the Middle East, the United Arab Emirates (UAE) held its top position attracting foreign direct investment in renewable energy close to $2.4 billion in the year 2020.
UAE has also made strong commitments to bring down its carbon emission levels – the “Energy Strategy 2050” is a stepping stone to achieve the said goal.
Energy Strategy 2050, a commitment of AED 600 billion, was made by the UAE in 2017. Amongst other things, the goal here is to increase the share of renewable energy in the total energy mix from 25% to 50%. The 50 Projects’ Initiative of the UAE will be a major pillar in the Annual Investment Meeting, which will highlight the Energy Strategy and show the roadmap for the next 50 years.
Further, the UAE will also be hosting the 28th United Nations Climate Change Conference to be held in the year 2023, in its fight against climate change.
Most countries around the world also witnessed a similar investment trend in the renewable energy sector.
In the entire bucket of renewable resources, the majority stake of the foreign direct investment is captured by solar and wind energy. 91% of the world’s capital investment in renewable energy is done in solar and wind energy.
In the year 2020, a total of $28.5 billion and $9.3 billion were invested in wind and solar power, respectively.
Despite the pandemic that struck health crises around the world, the upward trend of foreign direct investment in renewable energy has remained unaffected.
The strategies of the world leaders supporting the curve of increasing reliance on renewable energy is here to stay. As a result, in the years to come, the world economy will witness a major chunk of foreign direct investment going to renewable energy.
