Foreign direct investment into renewables has so far weathered the storm that hit the whole energy market in the wake of the Ukraine war, keeping the transition of the global economy to net-zero, a new report finds.
FDI into renewables held strong in the first quarter of 2022 as the sudden volatility of Russian gas supplies has left industries across Europe and other regions scrambling for readily available alternatives, renewable or not. It stood at $24.9bn in the period, the second-best first-quarter performance on records after 1Q09, particularly thanks to major investment announcements in capital-intensive offshore wind and hydrogen projects, finds The Switch Report 2022, a joint research project by fDi Intelligence and the Enel Foundation, the research think tank of Italian power company Enel.
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This fresh data, which is based on data from foreign investment monitor fDi Markets, thus confirms the long-term upward trajectory of FDI into renewables energy and the investment“switch” unveiled by the report.
Back in 2005, renewables accounted for just a fraction of global FDI, fossil fuels for over one fifth. Fast forward to 2021, and the table has turned. Fossil fuels made up a fraction of global FDI, renewables about 15%. Remarkably, renewables have dethroned fossil fuels as the biggest magnet of global FDI across all the sectors since 2019.
The implications of this switch are far-reaching, also from a geopolitical perspective. For decades, the world’s energy map has been built on relations between Western consuming nations and oil-producing and exporting countries. With 75% of the oil reserves located in the Middle East and North Africa and Venezuela and over 50% of the gas reserves in Russia, Iran and Qatar, the use of fossil fuels has created a map of global interdependencies - and connected geopolitical tensions - which have deepened with the entry of China and India into the global economy as fossil fuel consumers.
Renewable energy sources have turned this paradigm upside down. Given their ubiquitous nature, the dichotomy between importers and exporters becomes obsolete. Geographies the world over have a chance to harvest local RES to meet domestic energy demands and lessen their dependence on imports of fossil fuels, limiting the geopolitical value traditionally attached to the energy sector, but rather spurring cooperative patterns. In this perspective, the degree of success they can achieve hinges on their capacity to attract investment from international renewable energy developers that have the capital and know-how to develop such projects for profit.
The Switch Report 2022 highlights that the energy transition is redrawing the energy map. The patterns of global foreign investment into renewables outline the contours of this new energy map, and the new geopolitical order it brings along.