February 27, 2025 • 24 mins
Annual investment in the energy transition has surpassed $2 trillion for the first time. Investors placed bets on renewable energy, power grids and energy storage, while buzzy emerging technologies fell out of favor. On this episode, Dana Perkins is joined by Meredith Annex, BNEF’s head of clean power, to discuss the report ‘Energy Transition Investment Trends 2025.’
Complementary BNEF research on the trends driving the transition to a lower-carbon economy can be found at BNEF<GO> on the Bloomberg Terminal, on bnef.com or on the BNEF mobile app.
Links to research notes from this episode:
A publicly available summary report of Energy Transition Investment Trends 2025 can be found at - https://about.bnef.com/energy-transition-investment/
BNEF subscribers can find the whole report at - https://www.bnef.com/flagships/clean-energy-investment
See omnystudio.com/listener for privacy information.
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Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:00):
This is Dana Perkins and you're listening to Switched on,
the podcast brought to you by BNF, and today we're
looking into the investment trends that defined the energy transition
in twenty twenty four, where investment levels exceeded two trillion
dollars globally for the first time. While this represented an
eleven percent year on year increase when compared with twenty
twenty three, unsurprisingly, these investments were not distributed evenly. For example,
(00:25):
one technology mainstay of renewable energy, came out on top,
and one newer technology that has had a lot of
buzz surrounding it in recent years is now losing popularity
when it comes to putting money where your mouth is.
I'm joined by b and EF's head of Clean Power,
Meredith Annex, and our conversation doesn't end with new clean
energy capacity. She also shares insight into the investments made
(00:46):
into the grid and energy storage, which have traditionally been
considered bottlenecks but now might be improving. The show pulls
from information found in BNF's twenty twenty five edition of
the Energy Transition Investment Trends Report. If your client, you'll
be able to find the full report at BNF go
on the Bloomberg terminal or once logged into BNAF dot com.
If you're not yet a client, you can download an
(01:08):
executive summary at about dot BNAF dot com. Forward slash
Energy Dash Transition Dash Investment. Now let's get to talking
about what those investment trends were. Meredith, thank you for
(01:30):
coming on the show today.
Speaker 2 (01:31):
Thank you so much for having me. Dana.
Speaker 1 (01:33):
We're here to talk about the Energy Transition Investment Trends Report.
And before we get into that, I think it's important
just to highlight the fact that you know, when you're
working with your team on the research, that they're covering
so much of how we approach our research, not every
single time, but often we're thinking about is it technology,
is it policy? Is it economics? And this one really
encapsulates this. Looking back on the previous year and what
(01:56):
happened on where the money's moving so really big part
of the part of what we cover at BNF. So
invariably that means we know that it has value. Let's
look at energy investment trends. Let's see what it tells us.
How many times have we done this? And is once
a year often enough or too often, and why.
Speaker 2 (02:15):
I think it's a report that we've been producing those
since the foundation of BNIF, so even before we were
acquired by Bloomberg, we were tracking the investments going in.
We didn't call it Energy transition investment trends at the time,
but we've been looking at this for a very very
long time now. This particular report, as you said, it's
our attempt to look bottom up at all of the
investments that have happened within the energy transition over the
(02:36):
past year. It's the fifth iteration of that report in
its current form. We've been adding to it steadily over time,
so a couple of years back we added things like
electrified heat and grids news sectors that are becoming important
to the transition to make sure that it stays comprehensive
in scope and is it's a hugely impactful piece. As
you said, this is the real money, This is the
real things that are happening a lot of the time
(02:58):
at BANIF we are looking forward, but having this kind
of once a year point where we sense check that
and see how it's playing out in reality, it has
been a very valuable exercise.
Speaker 1 (03:07):
And you say bottom up, so where along this investor
community continuum do we look Is it everything from venture
capital all the way up to big banks and lending,
you know, what does encapsulate?
Speaker 2 (03:20):
So the report has four sections. The one part of it,
which is the part that I work most closely with,
is the Energy Transition Investment that's looking at spending into
physical assets, so that is going to be points of
electricity generation, low carbon molecule production, consumption that is low
carbon as well. All of that. We've also got a
(03:40):
supply chain section which is looking at investments into the
factories that help make the clean technology equipment. And then
we've got two sections that are looking at the fund
raising side of things, whether that is, you know, the
sustainable finance side of things, what's happening with corporate bonds,
debt raising issuances, or whether that's looking at more of
the VC side of things, what's happening with climate tech
(04:02):
investments around the world.
Speaker 1 (04:04):
So, given this is a fifth iteration, and my first
question really was around also is this often enough once
a year? Does that tell us enough of a story
that we can compare apples to apples and really see
some trends emerge? Were we able to actually see some
trends emerge and is year long enough for us to
really be able to say, you know, twenty twenty four
had a theme.
Speaker 2 (04:25):
Absolutely, I think the year point tends to be better,
especially because a lot of these are chunky investments, especially
when you're looking at newer sectors things like hydrogen CCUS
low carbon industry. These will be not very frequent, but
big volumes of money that come out, and so looking
at it on an annual basis might tell you more
than looking at it a smaller timeline, because that might
(04:46):
just have been oh well, a deal closed in July
instead of June. On the renewable side, because there's a
lot more activity there, it's a more mature sector. We
actually do look at that twice a year, so in
the summer we also put out a report that's the
Renewable Energy Investment TRACKERBLISH alongside the Energy Transition Investment Trends
Report as a biannual publication just looking at clean energy
and renewable electricity specifically, as well as biofuels, and that's
(05:09):
just to reflect the nature of that market. You get
more transactions throughout the year, there's more things for us
to track and we can use that as kind of
like a midway point to see if we're on track
for the trends that we were expecting. So as you
zoomed out, what were some of the trends that emerged.
I think there are two really big trends from the
Energy Transition Investment Trends Report this year. First of all,
(05:31):
before we get into those trends, there's just a huge
milestone number this year, which is that we exceeded two
trillion dollars for the first time, which I think is
an incredibly exciting thing to remember, especially right now when
a lot of the language and political tension around clean
energy and the energy transition is quite high in many
parts of the world. Despite all of that, this stuff
(05:51):
is economical. We invested two trillion across the energy transition
space last year. Now, there are two trends, as we said,
that are coming out of this. One is that the
investment rate is slowing, so we saw a much slower
rate of growth last year. We saw growth, but it
was less immense than it was over the past two
year period. That's one trend that we're seeing, and that's
you know, driven a lot by what's happening with renewable energy.
(06:13):
Some of that comes down to just cheaper equipment for solar,
and some of it has to do with other challenges.
And then the other trend that we're seeing is this
almost two stage transition that's underway. So if we look
at the traditional areas of investment, renewables, electrified transport, and grid,
those accounted for over ninety percent of the total investment
(06:34):
over the course of twenty twenty four, and those are growing,
whereas we actually saw a drop in the newer areas
of investment, things like hydrogen CCUS, clean shipping, electrified heat,
and clean industry. So those only accounted for seven point
four percent of our total investment in twenty twenty four
and represented a twenty three percent year on your decline
as well compared to twenty twenty.
Speaker 1 (06:54):
Three, which is a really important distinction to make because
I feel like the emerging tech conversation dominate. It's so
much of conversation, whether it's at our summits or even
just a Friday night with my friends. Everybody wants to
talk about the emerging tech. But if that's only representing
seven point four percent of the investment, the conversation around
what we actually are pouring money into and the solutions
(07:15):
that are getting real traction. I think should be just
as interesting for us to discuss. So let's do that.
Let's make them as interesting as possible for people who
are listening looking at renewables, what technologies really stood out
to you?
Speaker 2 (07:29):
Twenty twenty four was once again a story of solar.
A renewable energy investment in general attracted seven hundred and
twenty eight billion of investment in twenty twenty four. That
was up eight percent from the previous year. As I mentioned,
as a slower growth rate. Over twenty twenty to twenty
twenty three, we saw nearly twenty one percent annual rise
in investments, So this is a slower growth, but when
we're looking at what's driving that growth, it is solar.
(07:52):
Solar was seventy two percent of the total investment that
we saw over the course of last year, a total
of over five hundred billion dollars being spent on that
across residential, utility and commercial scale applications, and a lot
of this is just driven by really cheap modules. Does
that have a geographic focus, because you know, on this show,
(08:13):
for those who listen to it regularly, they know a
lot of the conversation in particular about solar has to
do with Chinese manufacturers and how cheap those panels have become.
And even then, when you're looking at the sort of
industries they're trying to build up in the US with
the Inflation Reduction Act, solar is one of them, semiconductors.
Then sitting right in between all of this is this
story of cheap solar being financed, something that's happening all
(08:36):
over the world, or is it something that's really been
swayed by some very specific markets. It's a global story.
Those cheap Chinese modules benefit everybody, and what we're seeing
is a couple of specific stories. In general, newer markets
are rising, so there's a lot of activity in Central Asia,
Southeast Asia, Middle East, North Africa, probably the markets that
(08:57):
we would consider less mature for solar, but those are
growing immensely. We're seeing a strong reaction and consumer uptake
to blackouts. So if you look at South Africa has
actually been more stable with its power great over the
past year, so it saw a decline in solar installation
solar investment last year compared to twenty twenty three, but
in twenty twenty three, the blackouts that we saw in
(09:18):
that market were really driving sales of solar, and in
twenty twenty four we saw a very similar story playing
out with in Pakistan. So you're getting all of these
markets where consumers are now able to afford solar modules
who may not have been able to otherwise before, and
they're taking them, and they're using that to build their
own resiliency and to service their own power consumption.
Speaker 1 (09:39):
Which then leads us to another place in energy investment
trends that we saw maybe benefiting over the course of
this past year, which was the storage space, perhaps intrinsically
linked to the blackouts in solar, enabling us to get
through those periods where you don't have power coming from
the sun. Tell me a bit more about the story
in storage and and how positive is it really or
(10:02):
have I taken a look at a few charts and
maybe built it up to be bigger than it is.
Speaker 2 (10:06):
Storage is growing immensely. It's still a small industry compared
to solar or wind. You know, we're talking about fifty
three point nine billion of investment across utility, commercial and
residential scale assets over the course of twenty twenty four,
but that easily surpassed the twenty twenty three record of
thirty nine point six billion, and we really see that
momentum continuing for storage. There's a couple of drivers to that.
(10:29):
First of all, kind of similar to solar's the story
of cost declines. Lithium ion battery pack prices fell twenty
percent over the course of last year. They're now at
around one hundred and fifteen dollars per kilowatt hour based
off of our most recent price survey, and that's creating
again new opportunities to deploy this technology. It's making it
much more affordable. The biggest challenge for storage these days
(10:49):
is not so much the cost of that equipment. It's
more around the revenue and where the revenue is going
to come from. And on that side, we're also seeing
some gains. So you're seeing more adoption alongside residential commercial
solar because it's a way to increase self consumption from
that solar generation. But you're also seeing more markets that
are launching capacity markets and contracts for procuring energy storage,
(11:13):
and so that's been a growing trend as.
Speaker 1 (11:14):
Well around the world. Now, in order to plug all
this new capacity online, there have to be transmission, distribution
lines and that has lagged. Can you talk about whether
or not the investment is actually going in that direction
in order to enable the rest of new capacity to
actually come online, or if maybe a slow down in investment
on that side has actually led to this overall slow
(11:36):
down in that one of those kind of more macro
themes that you saw over the course of the last year,
and that might be part of the problem.
Speaker 2 (11:42):
So grid investment also hit a record last year. This
is in one of those you know, kind of core
markets that are continuing to grow stories that we were
talking about at the start. So we saw three hundred
and ninety billion invested in the power grid, at least
on capital expenditure. Obviously there's a lot of operational expenditure
in the grid as well, but this report is tracking
capital expenditure, and on top of that, you know, this
(12:03):
is a trend that's been going on for a while.
It's been about a thirteen percent compound annual growth rate
since twenty twenty one. This year was a record in
twenty twenty four. But overall, while that's being driven by
rising needs to connect more renewable energy and more consumers,
it's still not enough necessarily to meet the amount of
renewables that are planned to be built. So if we
(12:26):
look at announced renewable energy pipelines or the amount of
capacity that's waiting in the queue to connect to the grid,
those are still significantly outsized. The grid's going to have
a long way to go to get past the bottlenecks
that are in the markets right now. It's clear that
a lot of those investment plans are taking this into account,
that we're starting to get there. But I think we'll
be talking about the story about grid capacity constraints for
(12:47):
a while.
Speaker 1 (12:47):
Okay, so it's a potential bottleneck, but there is money
going into it, and it looks like everyone's going into
it with their eyes wide open. Let's point out the
renewables omission that you have not yet discussed. If this
was the year of solar, that means it was not
the year of wind. What's happening with wind?
Speaker 2 (13:03):
Yes, So WIN investment reached one hundred and ninety five
billion in twenty twenty four. But within that you've got
kind of two different tales. Onshore wind we think grew
about five percent. It's been relatively stable for the past
few years. There's a couple of cool stories within there,
but the real story of the decline in wind investment
came from offshore investments, which fell fifty seven percent from
(13:24):
twenty three to twenty twenty four. With offshore, the investment
opportunities are very chunky again, kind of like what we
were talking about with those new sectors. These are extremely
large projects. The ability to have an investable asset often
depends on pre set timelines that are determined by government
auction schedules or seabed lea schedules. So some of that
(13:46):
decline that we saw in twenty twenty four might just
be down to timing, maybe just been less availability, but
certainly the sector's also been under a lot of pressure
last year.
Speaker 1 (13:55):
So, as we mentioned when we started the show, there's
these three lenses with which we often look at progress
in the energy transition. So economics we've discussed, Technology, we've
discussed and how that's actually we've seen a difference this
year in terms of the investment that's gone into the
more mature versus the emerging tech. So then that leads
us to that last one policy. It certainly is an
(14:15):
actively moving space, and by the time we actually published
this show, many more things may have changed in the
policy sphere, but over the course of twenty twenty four,
one of the really important themes was the Inflation Reduction
Act in the US, and we talked about it many times.
So as we head into a year in twenty twenty
five of uncertainty when it comes to US clean power policy,
(14:36):
maybe you can talk a little bit about how those
policy targets in the year that has gone by played
into the numbers that we are seeing, so that we
can consider where we might be in a year's time.
Should there be big changes on that side.
Speaker 2 (14:49):
Absolutely, so, the Inflation Reduction Act has led to a
step change in the level of investment that we're seeing
within the US market. That's undeniable if we look at
the amounts of invested before its existence versus is more recently,
they're just it's much higher now. That said, the US
did contract last year. It fell about twelve percent. A
lot of that was there were a couple of reasons
for that. Some was down to election uncertainty, Some of
(15:11):
that was around interest rates rising. Some of that was
because twenty twenty three was a particularly high year because
we were overcoming supply chain bottlenecks and projects were just
able to move forward more quickly. So there's a number
of reasons there. Overall, though, we do find that the
US market is going to be pretty resilient to the
changes that are coming or could be coming around renewal
(15:33):
energy policy at a federal level. So at those point
in time, the recording of this podcast, as far as
we're where the Inflation Reduction Act tax credits will still
be available, could all change. As you said, the main
sector that's been affected so far is offshore wind, where
we have significantly reduced our forecast. That's driven not just
by uncertainty around the Inflation Reduction Act, but also the
(15:53):
second Trump presidency's attitude towards seabed leasing and saying that
they're not going to permit new sites. That's been one factor.
If we look at entrwind that would be significantly affected
by a removal of tax credits. Essentially, what it would
do is it would make some areas less economically attractive
than they would be with those tax credits, and so
you're more more affected by your location around what your
(16:15):
expected project return would be, whereas with the tax credits
you might be able to choose locations from a couple
of different places because just more things will be economically competitive.
On solar, we expect less of an impact. Sol there's
a lot cheaper, it's less capex intensive than wind is,
and so it's it's a bit easier to site as well.
And so we find that cetera to be the most
resilient to any changes in federal tax credit policy. But overall,
(16:38):
the biggest reason why we think the US is resilient
is because we look at corporate energy demand and this
year we just published our corporate power Purchase Agreement Outlook.
Twenty twenty four was the eighth straight record year for
off take agreements. A lot of those are coming out
of the US, A lot of those are coming from
large tech companies who strong needs to procure energy quickly.
Solar and wind is a way to do that. And
(16:58):
because we look at that, because we're looking at utility
procurement plans as well, we have a lot of optimism
that demand will remain for US clean energy even with
changes potentially happening or uncertainty remaining within the federal policy landscape.
Speaker 1 (17:13):
And one of the things that we've learned over the
course of the past couple of decades is that the
energy system is not becoming more simple with single sources
of energy, but actually much more complex with solutions that
are really fit for a specific market. And this potentially
is a opportunity for domestic manufacturing in the US. So
whether or not it is renewable energy is potentially beside
(17:35):
the point in that it actually does feed in quite
closely with tariffs and domestic manufacturing objectives of this administration.
So perhaps twenty twenty five we also not be the
year of wind, but it may continue to be the
year of solar.
Speaker 2 (17:48):
And it's worth saying as much as you know, the
overall wind story was a pretty hard one with the
declines that we saw in twenty twenty four, there are
really positive cases in there. So we saw a lot
of growth from new markets for wind. This is kind
of true across renewable energy in general, but with when
in particular. We saw growth in markets like Romania and
(18:09):
markets that just may not have come across your radar
before if you were active in the wind industry. The
other thing that we saw is mature markets that actually grew,
So a lot of mature arkets contracted over the course
of twenty twenty four, but Germany we're starting to see
the impacts of permitting reform. There we actually saw a
growth investment. In Australia, we saw more supportive policy and
strong corporate energy demand, so again we saw an investment growth.
(18:30):
And in Korea where we actually saw growth across AFTRA, wind,
solar and ONTRA win for various reasons.
Speaker 1 (18:36):
You've mentioned a few countries that are worth really focusing on,
and let's continue on with this part around the world.
I mean it really when we look at trends, I
think back to when I first moved to the UK,
which is about two decades ago, and when people ask
me why I came to London, the answer is really well,
I wanted to work in the renewable space, and the
UK had an emissions target and Germany couldn't throw solar
(18:57):
panels on their roofs fast enough. So this was the
center of gravity. That center of gravity keep shifting every year,
as we see in the energy transition investment trends, it
does move around. So tell me a bit about where
you're seeing the center of gravity shift in some of
those markets that maybe stood out as not the bog
standard one year after the next. So specifically within the
(19:18):
renewable energy investment side of this, we have to talk
about mainland China. You can't not talk about mainland China
when you're talking about global investments and renewables. Mainland China
made up forty percent of our global total this year.
It was only a six percent year on your rise,
which is slightly unusual for that market. A lot of
that is because you had cheaper equipment that was offsetting
(19:38):
some of the growth in new investment that you had
in terms of capacity. So it's basically your each dollar
was going further in terms of the amount that it
could build in that market. Now, that's the one that
you have to talk about forty percent of total growth.
But there's a couple of markets that we talked about
just within wind But if we'd look even more globally,
you have to talk about Pakistan. Pakistan saw sixty billion
(20:00):
of investment last year, twelve point three billion more than
in twenty twenty three. That was almost entirely driven by solar.
We saw India investment grow fifteen percent, Southeast Asia's investment
grow thirty seven percent. A lot of that was driven
by the Philippines, which has just been a real growth
market within that region, and even within the US where
you did see an overall decline, as we discussed, there
(20:21):
are markets that were growing. So if we look at
like Texas and California, we're seeing a lot more utility
scale storage deployment, for instance, and that has been another
story within the overall energy space. So I actually am
not sure whether this falls into emerging tech or mature tech.
And what I want to ask is this kind of
overrated underrated nuclear question because a small modular is something
(20:44):
people talk about much more on the emerging tech side,
But then we see nuclear in countries like France as
a very mature part of baseload power. Where does nuclear
investment fit into this? Because it has been discussed much
more and there is more money going into R and
D on that side, So do we expect to see
that feature? Will there be a year in the future
where you can say it was the year the nuclear
featured in the energy transition investment trends? So a lot
(21:07):
of ways to answer that one.
Speaker 2 (21:09):
There's a lot to say on nuclear. Overall nuclear investment
in twenty twenty four was roughly flat with twenty twenty three.
There were more reactors, just slightly that were under construction
last year. But I think when we're talking about nuclear,
we have to separate out kind of the conventional restarts,
that sort of side of it from the newer technology
like small modular reactors. The other big thing to note
(21:30):
about nuclears, of course, data centers. We saw a huge
rise in conversation around nuclear over the course of twenty
twenty four, a lot of interest in using nuclear as
a way to provide baseload power to these power hungry
data center sites. The ones that are successfully doing that
are the ones that can utilize a existing nuclear reactor,
(21:50):
conventional nuclear reactor and simply just restart it or purchase
that power. We saw the first nuclear power purchase agreements
for off site supply signed over the course of twenty
twenty four as well. But when we're talking about small
modular reactors, these aren't commercially viable yet right they're still
being proven out. We don't think that they're going to
be a big part of the story until the mid
twenty thirties. So the timelines that we're talking about for
(22:13):
things like data center load growth, you're probably going to
want those data centers online before that small modular reactor
is available.
Speaker 1 (22:19):
So nuclear does fit into both of these buckets, but
you would consider it one to watch.
Speaker 2 (22:23):
Yeah, I think it's worth watching. Whether it goes or
not uncertain, but it's definitely worth watching.
Speaker 1 (22:28):
So one last overrated underrated heat pumps.
Speaker 2 (22:32):
So underrated heat pumps had a very challenging year in
twenty twenty four. We saw significant drop in sales in Europe,
for instance, largely on the back of challenges around consumer
spending and policy changes. But they're so important to the
energy transition, whether we're looking at low temperature industrial heat
(22:53):
or the residential and commercial building segments. We think heat
pumps are going to be a huge part of the
energy transition into decarbonization of those two sectors. And so
I'll say underrated, even though the investment fell over the
course of twenty twenty four.
Speaker 1 (23:07):
Meredith, thank you for walking us through these trends over
the course of the last year and for joining us
on the show.
Speaker 2 (23:12):
Thank you so much for having me, Dana, it was
great to be here.
Speaker 1 (23:23):
Today's episode of Switched On was produced by cam Gray
with production assistance from Kamala S. Shelling. Bloomberg NIF is
a service provided by Bloomberg Finance LP and its affiliates.
This recording does not constitute, nor should it be construed,
as investment a vice, investment recommendations, or a recommendation as
to an investment or other strategy. Bloomberg anif should not
be considered as information sufficient upon which to base an
(23:45):
investment decision. Neither Bloomberg Finance LP Nor any of its
affiliates makes any representation or warranty as to the accuracy
or completeness of the information contained in this recording, and
any liability as a result of this recording is expressly disclaimed.
This is Dana Perkins and you're listening to Switched on,
the podcast brought to you by BNF, and today we're
looking into the investment trends that defined the energy transition
in twenty twenty four, where investment levels exceeded two trillion
dollars globally for the first time. While this represented an
eleven percent year on year increase when compared with twenty
twenty three, unsurprisingly, these investments were not distributed evenly. For example,
(00:25):
one technology mainstay of renewable energy, came out on top,
and one newer technology that has had a lot of
buzz surrounding it in recent years is now losing popularity
when it comes to putting money where your mouth is.
I'm joined by b and EF's head of Clean Power,
Meredith Annex, and our conversation doesn't end with new clean
energy capacity. She also shares insight into the investments made
(00:46):
into the grid and energy storage, which have traditionally been
considered bottlenecks but now might be improving. The show pulls
from information found in BNF's twenty twenty five edition of
the Energy Transition Investment Trends Report. If your client, you'll
be able to find the full report at BNF go
on the Bloomberg terminal or once logged into BNAF dot com.
If you're not yet a client, you can download an
(01:08):
executive summary at about dot BNAF dot com. Forward slash
Energy Dash Transition Dash Investment. Now let's get to talking
about what those investment trends were. Meredith, thank you for
(01:30):
coming on the show today.
Speaker 2 (01:31):
Thank you so much for having me. Dana.
Speaker 1 (01:33):
We're here to talk about the Energy Transition Investment Trends Report.
And before we get into that, I think it's important
just to highlight the fact that you know, when you're
working with your team on the research, that they're covering
so much of how we approach our research, not every
single time, but often we're thinking about is it technology,
is it policy? Is it economics? And this one really
encapsulates this. Looking back on the previous year and what
(01:56):
happened on where the money's moving so really big part
of the part of what we cover at BNF. So
invariably that means we know that it has value. Let's
look at energy investment trends. Let's see what it tells us.
How many times have we done this? And is once
a year often enough or too often, and why.
Speaker 2 (02:15):
I think it's a report that we've been producing those
since the foundation of BNIF, so even before we were
acquired by Bloomberg, we were tracking the investments going in.
We didn't call it Energy transition investment trends at the time,
but we've been looking at this for a very very
long time now. This particular report, as you said, it's
our attempt to look bottom up at all of the
investments that have happened within the energy transition over the
(02:36):
past year. It's the fifth iteration of that report in
its current form. We've been adding to it steadily over time,
so a couple of years back we added things like
electrified heat and grids news sectors that are becoming important
to the transition to make sure that it stays comprehensive
in scope and is it's a hugely impactful piece. As
you said, this is the real money, This is the
real things that are happening a lot of the time
(02:58):
at BANIF we are looking forward, but having this kind
of once a year point where we sense check that
and see how it's playing out in reality, it has
been a very valuable exercise.
Speaker 1 (03:07):
And you say bottom up, so where along this investor
community continuum do we look Is it everything from venture
capital all the way up to big banks and lending,
you know, what does encapsulate?
Speaker 2 (03:20):
So the report has four sections. The one part of it,
which is the part that I work most closely with,
is the Energy Transition Investment that's looking at spending into
physical assets, so that is going to be points of
electricity generation, low carbon molecule production, consumption that is low
carbon as well. All of that. We've also got a
(03:40):
supply chain section which is looking at investments into the
factories that help make the clean technology equipment. And then
we've got two sections that are looking at the fund
raising side of things, whether that is, you know, the
sustainable finance side of things, what's happening with corporate bonds,
debt raising issuances, or whether that's looking at more of
the VC side of things, what's happening with climate tech
(04:02):
investments around the world.
Speaker 1 (04:04):
So, given this is a fifth iteration, and my first
question really was around also is this often enough once
a year? Does that tell us enough of a story
that we can compare apples to apples and really see
some trends emerge? Were we able to actually see some
trends emerge and is year long enough for us to
really be able to say, you know, twenty twenty four
had a theme.
Speaker 2 (04:25):
Absolutely, I think the year point tends to be better,
especially because a lot of these are chunky investments, especially
when you're looking at newer sectors things like hydrogen CCUS
low carbon industry. These will be not very frequent, but
big volumes of money that come out, and so looking
at it on an annual basis might tell you more
than looking at it a smaller timeline, because that might
(04:46):
just have been oh well, a deal closed in July
instead of June. On the renewable side, because there's a
lot more activity there, it's a more mature sector. We
actually do look at that twice a year, so in
the summer we also put out a report that's the
Renewable Energy Investment TRACKERBLISH alongside the Energy Transition Investment Trends
Report as a biannual publication just looking at clean energy
and renewable electricity specifically, as well as biofuels, and that's
(05:09):
just to reflect the nature of that market. You get
more transactions throughout the year, there's more things for us
to track and we can use that as kind of
like a midway point to see if we're on track
for the trends that we were expecting. So as you
zoomed out, what were some of the trends that emerged.
I think there are two really big trends from the
Energy Transition Investment Trends Report this year. First of all,
(05:31):
before we get into those trends, there's just a huge
milestone number this year, which is that we exceeded two
trillion dollars for the first time, which I think is
an incredibly exciting thing to remember, especially right now when
a lot of the language and political tension around clean
energy and the energy transition is quite high in many
parts of the world. Despite all of that, this stuff
(05:51):
is economical. We invested two trillion across the energy transition
space last year. Now, there are two trends, as we said,
that are coming out of this. One is that the
investment rate is slowing, so we saw a much slower
rate of growth last year. We saw growth, but it
was less immense than it was over the past two
year period. That's one trend that we're seeing, and that's
you know, driven a lot by what's happening with renewable energy.
(06:13):
Some of that comes down to just cheaper equipment for solar,
and some of it has to do with other challenges.
And then the other trend that we're seeing is this
almost two stage transition that's underway. So if we look
at the traditional areas of investment, renewables, electrified transport, and grid,
those accounted for over ninety percent of the total investment
(06:34):
over the course of twenty twenty four, and those are growing,
whereas we actually saw a drop in the newer areas
of investment, things like hydrogen CCUS, clean shipping, electrified heat,
and clean industry. So those only accounted for seven point
four percent of our total investment in twenty twenty four
and represented a twenty three percent year on your decline
as well compared to twenty twenty.
Speaker 1 (06:54):
Three, which is a really important distinction to make because
I feel like the emerging tech conversation dominate. It's so
much of conversation, whether it's at our summits or even
just a Friday night with my friends. Everybody wants to
talk about the emerging tech. But if that's only representing
seven point four percent of the investment, the conversation around
what we actually are pouring money into and the solutions
(07:15):
that are getting real traction. I think should be just
as interesting for us to discuss. So let's do that.
Let's make them as interesting as possible for people who
are listening looking at renewables, what technologies really stood out
to you?
Speaker 2 (07:29):
Twenty twenty four was once again a story of solar.
A renewable energy investment in general attracted seven hundred and
twenty eight billion of investment in twenty twenty four. That
was up eight percent from the previous year. As I mentioned,
as a slower growth rate. Over twenty twenty to twenty
twenty three, we saw nearly twenty one percent annual rise
in investments, So this is a slower growth, but when
we're looking at what's driving that growth, it is solar.
(07:52):
Solar was seventy two percent of the total investment that
we saw over the course of last year, a total
of over five hundred billion dollars being spent on that
across residential, utility and commercial scale applications, and a lot
of this is just driven by really cheap modules. Does
that have a geographic focus, because you know, on this show,
(08:13):
for those who listen to it regularly, they know a
lot of the conversation in particular about solar has to
do with Chinese manufacturers and how cheap those panels have become.
And even then, when you're looking at the sort of
industries they're trying to build up in the US with
the Inflation Reduction Act, solar is one of them, semiconductors.
Then sitting right in between all of this is this
story of cheap solar being financed, something that's happening all
(08:36):
over the world, or is it something that's really been
swayed by some very specific markets. It's a global story.
Those cheap Chinese modules benefit everybody, and what we're seeing
is a couple of specific stories. In general, newer markets
are rising, so there's a lot of activity in Central Asia,
Southeast Asia, Middle East, North Africa, probably the markets that
(08:57):
we would consider less mature for solar, but those are
growing immensely. We're seeing a strong reaction and consumer uptake
to blackouts. So if you look at South Africa has
actually been more stable with its power great over the
past year, so it saw a decline in solar installation
solar investment last year compared to twenty twenty three, but
in twenty twenty three, the blackouts that we saw in
(09:18):
that market were really driving sales of solar, and in
twenty twenty four we saw a very similar story playing
out with in Pakistan. So you're getting all of these
markets where consumers are now able to afford solar modules
who may not have been able to otherwise before, and
they're taking them, and they're using that to build their
own resiliency and to service their own power consumption.
Speaker 1 (09:39):
Which then leads us to another place in energy investment
trends that we saw maybe benefiting over the course of
this past year, which was the storage space, perhaps intrinsically
linked to the blackouts in solar, enabling us to get
through those periods where you don't have power coming from
the sun. Tell me a bit more about the story
in storage and and how positive is it really or
(10:02):
have I taken a look at a few charts and
maybe built it up to be bigger than it is.
Speaker 2 (10:06):
Storage is growing immensely. It's still a small industry compared
to solar or wind. You know, we're talking about fifty
three point nine billion of investment across utility, commercial and
residential scale assets over the course of twenty twenty four,
but that easily surpassed the twenty twenty three record of
thirty nine point six billion, and we really see that
momentum continuing for storage. There's a couple of drivers to that.
(10:29):
First of all, kind of similar to solar's the story
of cost declines. Lithium ion battery pack prices fell twenty
percent over the course of last year. They're now at
around one hundred and fifteen dollars per kilowatt hour based
off of our most recent price survey, and that's creating
again new opportunities to deploy this technology. It's making it
much more affordable. The biggest challenge for storage these days
(10:49):
is not so much the cost of that equipment. It's
more around the revenue and where the revenue is going
to come from. And on that side, we're also seeing
some gains. So you're seeing more adoption alongside residential commercial
solar because it's a way to increase self consumption from
that solar generation. But you're also seeing more markets that
are launching capacity markets and contracts for procuring energy storage,
(11:13):
and so that's been a growing trend as.
Speaker 1 (11:14):
Well around the world. Now, in order to plug all
this new capacity online, there have to be transmission, distribution
lines and that has lagged. Can you talk about whether
or not the investment is actually going in that direction
in order to enable the rest of new capacity to
actually come online, or if maybe a slow down in investment
on that side has actually led to this overall slow
(11:36):
down in that one of those kind of more macro
themes that you saw over the course of the last year,
and that might be part of the problem.
Speaker 2 (11:42):
So grid investment also hit a record last year. This
is in one of those you know, kind of core
markets that are continuing to grow stories that we were
talking about at the start. So we saw three hundred
and ninety billion invested in the power grid, at least
on capital expenditure. Obviously there's a lot of operational expenditure
in the grid as well, but this report is tracking
capital expenditure, and on top of that, you know, this
(12:03):
is a trend that's been going on for a while.
It's been about a thirteen percent compound annual growth rate
since twenty twenty one. This year was a record in
twenty twenty four. But overall, while that's being driven by
rising needs to connect more renewable energy and more consumers,
it's still not enough necessarily to meet the amount of
renewables that are planned to be built. So if we
(12:26):
look at announced renewable energy pipelines or the amount of
capacity that's waiting in the queue to connect to the grid,
those are still significantly outsized. The grid's going to have
a long way to go to get past the bottlenecks
that are in the markets right now. It's clear that
a lot of those investment plans are taking this into account,
that we're starting to get there. But I think we'll
be talking about the story about grid capacity constraints for
(12:47):
a while.
Speaker 1 (12:47):
Okay, so it's a potential bottleneck, but there is money
going into it, and it looks like everyone's going into
it with their eyes wide open. Let's point out the
renewables omission that you have not yet discussed. If this
was the year of solar, that means it was not
the year of wind. What's happening with wind?
Speaker 2 (13:03):
Yes, So WIN investment reached one hundred and ninety five
billion in twenty twenty four. But within that you've got
kind of two different tales. Onshore wind we think grew
about five percent. It's been relatively stable for the past
few years. There's a couple of cool stories within there,
but the real story of the decline in wind investment
came from offshore investments, which fell fifty seven percent from
(13:24):
twenty three to twenty twenty four. With offshore, the investment
opportunities are very chunky again, kind of like what we
were talking about with those new sectors. These are extremely
large projects. The ability to have an investable asset often
depends on pre set timelines that are determined by government
auction schedules or seabed lea schedules. So some of that
(13:46):
decline that we saw in twenty twenty four might just
be down to timing, maybe just been less availability, but
certainly the sector's also been under a lot of pressure
last year.
Speaker 1 (13:55):
So, as we mentioned when we started the show, there's
these three lenses with which we often look at progress
in the energy transition. So economics we've discussed, Technology, we've
discussed and how that's actually we've seen a difference this
year in terms of the investment that's gone into the
more mature versus the emerging tech. So then that leads
us to that last one policy. It certainly is an
(14:15):
actively moving space, and by the time we actually published
this show, many more things may have changed in the
policy sphere, but over the course of twenty twenty four,
one of the really important themes was the Inflation Reduction
Act in the US, and we talked about it many times.
So as we head into a year in twenty twenty
five of uncertainty when it comes to US clean power policy,
(14:36):
maybe you can talk a little bit about how those
policy targets in the year that has gone by played
into the numbers that we are seeing, so that we
can consider where we might be in a year's time.
Should there be big changes on that side.
Speaker 2 (14:49):
Absolutely, so, the Inflation Reduction Act has led to a
step change in the level of investment that we're seeing
within the US market. That's undeniable if we look at
the amounts of invested before its existence versus is more recently,
they're just it's much higher now. That said, the US
did contract last year. It fell about twelve percent. A
lot of that was there were a couple of reasons
for that. Some was down to election uncertainty, Some of
(15:11):
that was around interest rates rising. Some of that was
because twenty twenty three was a particularly high year because
we were overcoming supply chain bottlenecks and projects were just
able to move forward more quickly. So there's a number
of reasons there. Overall, though, we do find that the
US market is going to be pretty resilient to the
changes that are coming or could be coming around renewal
(15:33):
energy policy at a federal level. So at those point
in time, the recording of this podcast, as far as
we're where the Inflation Reduction Act tax credits will still
be available, could all change. As you said, the main
sector that's been affected so far is offshore wind, where
we have significantly reduced our forecast. That's driven not just
by uncertainty around the Inflation Reduction Act, but also the
(15:53):
second Trump presidency's attitude towards seabed leasing and saying that
they're not going to permit new sites. That's been one factor.
If we look at entrwind that would be significantly affected
by a removal of tax credits. Essentially, what it would
do is it would make some areas less economically attractive
than they would be with those tax credits, and so
you're more more affected by your location around what your
(16:15):
expected project return would be, whereas with the tax credits
you might be able to choose locations from a couple
of different places because just more things will be economically competitive.
On solar, we expect less of an impact. Sol there's
a lot cheaper, it's less capex intensive than wind is,
and so it's it's a bit easier to site as well.
And so we find that cetera to be the most
resilient to any changes in federal tax credit policy. But overall,
(16:38):
the biggest reason why we think the US is resilient
is because we look at corporate energy demand and this
year we just published our corporate power Purchase Agreement Outlook.
Twenty twenty four was the eighth straight record year for
off take agreements. A lot of those are coming out
of the US, A lot of those are coming from
large tech companies who strong needs to procure energy quickly.
Solar and wind is a way to do that. And
(16:58):
because we look at that, because we're looking at utility
procurement plans as well, we have a lot of optimism
that demand will remain for US clean energy even with
changes potentially happening or uncertainty remaining within the federal policy landscape.
Speaker 1 (17:13):
And one of the things that we've learned over the
course of the past couple of decades is that the
energy system is not becoming more simple with single sources
of energy, but actually much more complex with solutions that
are really fit for a specific market. And this potentially
is a opportunity for domestic manufacturing in the US. So
whether or not it is renewable energy is potentially beside
(17:35):
the point in that it actually does feed in quite
closely with tariffs and domestic manufacturing objectives of this administration.
So perhaps twenty twenty five we also not be the
year of wind, but it may continue to be the
year of solar.
Speaker 2 (17:48):
And it's worth saying as much as you know, the
overall wind story was a pretty hard one with the
declines that we saw in twenty twenty four, there are
really positive cases in there. So we saw a lot
of growth from new markets for wind. This is kind
of true across renewable energy in general, but with when
in particular. We saw growth in markets like Romania and
(18:09):
markets that just may not have come across your radar
before if you were active in the wind industry. The
other thing that we saw is mature markets that actually grew,
So a lot of mature arkets contracted over the course
of twenty twenty four, but Germany we're starting to see
the impacts of permitting reform. There we actually saw a
growth investment. In Australia, we saw more supportive policy and
strong corporate energy demand, so again we saw an investment growth.
(18:30):
And in Korea where we actually saw growth across AFTRA, wind,
solar and ONTRA win for various reasons.
Speaker 1 (18:36):
You've mentioned a few countries that are worth really focusing on,
and let's continue on with this part around the world.
I mean it really when we look at trends, I
think back to when I first moved to the UK,
which is about two decades ago, and when people ask
me why I came to London, the answer is really well,
I wanted to work in the renewable space, and the
UK had an emissions target and Germany couldn't throw solar
(18:57):
panels on their roofs fast enough. So this was the
center of gravity. That center of gravity keep shifting every year,
as we see in the energy transition investment trends, it
does move around. So tell me a bit about where
you're seeing the center of gravity shift in some of
those markets that maybe stood out as not the bog
standard one year after the next. So specifically within the
(19:18):
renewable energy investment side of this, we have to talk
about mainland China. You can't not talk about mainland China
when you're talking about global investments and renewables. Mainland China
made up forty percent of our global total this year.
It was only a six percent year on your rise,
which is slightly unusual for that market. A lot of
that is because you had cheaper equipment that was offsetting
(19:38):
some of the growth in new investment that you had
in terms of capacity. So it's basically your each dollar
was going further in terms of the amount that it
could build in that market. Now, that's the one that
you have to talk about forty percent of total growth.
But there's a couple of markets that we talked about
just within wind But if we'd look even more globally,
you have to talk about Pakistan. Pakistan saw sixty billion
(20:00):
of investment last year, twelve point three billion more than
in twenty twenty three. That was almost entirely driven by solar.
We saw India investment grow fifteen percent, Southeast Asia's investment
grow thirty seven percent. A lot of that was driven
by the Philippines, which has just been a real growth
market within that region, and even within the US where
you did see an overall decline, as we discussed, there
(20:21):
are markets that were growing. So if we look at
like Texas and California, we're seeing a lot more utility
scale storage deployment, for instance, and that has been another
story within the overall energy space. So I actually am
not sure whether this falls into emerging tech or mature tech.
And what I want to ask is this kind of
overrated underrated nuclear question because a small modular is something
(20:44):
people talk about much more on the emerging tech side,
But then we see nuclear in countries like France as
a very mature part of baseload power. Where does nuclear
investment fit into this? Because it has been discussed much
more and there is more money going into R and
D on that side, So do we expect to see
that feature? Will there be a year in the future
where you can say it was the year the nuclear
featured in the energy transition investment trends? So a lot
(21:07):
of ways to answer that one.
Speaker 2 (21:09):
There's a lot to say on nuclear. Overall nuclear investment
in twenty twenty four was roughly flat with twenty twenty three.
There were more reactors, just slightly that were under construction
last year. But I think when we're talking about nuclear,
we have to separate out kind of the conventional restarts,
that sort of side of it from the newer technology
like small modular reactors. The other big thing to note
(21:30):
about nuclears, of course, data centers. We saw a huge
rise in conversation around nuclear over the course of twenty
twenty four, a lot of interest in using nuclear as
a way to provide baseload power to these power hungry
data center sites. The ones that are successfully doing that
are the ones that can utilize a existing nuclear reactor,
(21:50):
conventional nuclear reactor and simply just restart it or purchase
that power. We saw the first nuclear power purchase agreements
for off site supply signed over the course of twenty
twenty four as well. But when we're talking about small
modular reactors, these aren't commercially viable yet right they're still
being proven out. We don't think that they're going to
be a big part of the story until the mid
twenty thirties. So the timelines that we're talking about for
(22:13):
things like data center load growth, you're probably going to
want those data centers online before that small modular reactor
is available.
Speaker 1 (22:19):
So nuclear does fit into both of these buckets, but
you would consider it one to watch.
Speaker 2 (22:23):
Yeah, I think it's worth watching. Whether it goes or
not uncertain, but it's definitely worth watching.
Speaker 1 (22:28):
So one last overrated underrated heat pumps.
Speaker 2 (22:32):
So underrated heat pumps had a very challenging year in
twenty twenty four. We saw significant drop in sales in Europe,
for instance, largely on the back of challenges around consumer
spending and policy changes. But they're so important to the
energy transition, whether we're looking at low temperature industrial heat
(22:53):
or the residential and commercial building segments. We think heat
pumps are going to be a huge part of the
energy transition into decarbonization of those two sectors. And so
I'll say underrated, even though the investment fell over the
course of twenty twenty four.
Speaker 1 (23:07):
Meredith, thank you for walking us through these trends over
the course of the last year and for joining us
on the show.
Speaker 2 (23:12):
Thank you so much for having me, Dana, it was
great to be here.
Speaker 1 (23:23):
Today's episode of Switched On was produced by cam Gray
with production assistance from Kamala S. Shelling. Bloomberg NIF is
a service provided by Bloomberg Finance LP and its affiliates.
This recording does not constitute, nor should it be construed,
as investment a vice, investment recommendations, or a recommendation as
to an investment or other strategy. Bloomberg anif should not
be considered as information sufficient upon which to base an
(23:45):
investment decision. Neither Bloomberg Finance LP Nor any of its
affiliates makes any representation or warranty as to the accuracy
or completeness of the information contained in this recording, and
any liability as a result of this recording is expressly disclaimed.
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