Cleantech drives future global energy supply spending

Energy supply spending in 2023 saw upstream and clean power technology neck and neck¹. Of the nearly $2-trillion spend on energy supply globally in 2023, oil and gas exploration and production accounted for $577 billion, according to S&P Global Commodity Insights calculations. A very similar amount was invested in cleantech capacity, including all forms of non-hydro renewable power generation, energy storage, low-carbon hydrogen production and carbon capture and storage.

Global energy supply side spending is projected to increase by 20% in real terms between 2024 and 2030; cleantech and grids are expected to capture all the growth.

By 2030, cleantech spending will represent 1.5 times that of the total upstream spend. This reflects the underlying transition in energy capacity growth: upstream capacity will remain stable in terms of million barrels of oil equivalent per day to 2030, while non-hydro renewable capacity (in gigawatts) will nearly triple in Commodity Insights' base-case outlook².

Annual non-hydro renewable gross capacity additions will increase by another 70% between 2024 and 2030, driving investments. The share of spending in grid infrastructure in total spending will increase along with electrification.

Upstream spending will remain relatively flat in real terms, except for onshore and onshore unconventional, dominated by US shale. US shale is an essential component of global oil supply, and it has settled into a level of activity marked by capital discipline with a focus on returns to shareholders coupled with high service sector utilization, which has limited production growth.

Offshore activity will continue to rise, although spending will remain much smaller than spending in onshore. As a share of total E&P spend, offshore will grow to about 35% by the end of the decade.

Inflation is expected to cool going forward, although this will depend on the region and type of service and/or equipment being sourced.

Oil and gas operators will have to continue adjusting their project economics as prices remain relatively sticky after the post-pandemic period. There is no incentive for oilfield service companies to reduce prices after decades of low margins in the service sector.

North America will continue to lead global upstream spending from 2024 to 2028 with 39% of the total spend. Asia-Pacific will contribute the second-largest number of wells to be drilled through 2028, accounting for 24% of global spending. But with fewer oil development projects, coupled with the mature fields' high decline rates, production activities in the region will fall through the forecast.

Energy spending is driven by electrification, and with that comes a regional shift in energy investments from countries that produce fossil fuels to countries with high and growing power demand.

In stark contrast to E&P spending, the vast majority of cleantech spend will flow to Asia-Pacific. China alone will account for 30% of the cumulative total between 2024 and 2030, driven by massive additions of renewable power generation capacity. Europe will be the second largest region in terms of cleantech spending, while only contributing a few percent to global upstream spend. On the other hand, North America, Africa and the Middle East will all witness much lower spending in cleantech than in E&P spending.

This highlights a powerful regional shift of energy spending away from fossil fuel producing regions and toward regions that are heavily electrifying. Total cleantech supply spending between 2024 and 2030 is mostly going to be characterized by utility-scale power generation and storage (65%), followed by distributed generation (25%) and green hydrogen production³ (5%). Solar accounts for nearly half of cumulative spending.

Meanwhile, the share of investments in fossil-fueled power generation continues to dwindle. Consequently, cleantech investment will contribute to double the share of non-hydro renewables in the global power mix between 2024 and 2030, from 19% in 2024 to 33% in 2030. Total electricity demand will increase by 25% over that timeframe.

Despite another 26 GW of additional coal capacity, generation from coal is expected to fall as these plants are increasingly run to provide reliability services rather than baseload power. Gas will continue to play an important role in the power mix.

Capital efficiency -- the amount of capacity that is added for each dollar spend -- will continue to improve for cleantech.

Upstream companies continue to face elevated costs for construction materials and labor, forcing them to focus on increasing productivity and economies of scale. Most oil and gas majors continue to pursue projects that are profitable at $30/b to manage project costs. These breakeven costs are about half of what they were in the last decade. But, on balance, the cost of added capacity will remain roughly constant until the end of the decade.

Longer-term cost trends for cleantech, on the other hand, point firmly downward. This is because the cost of these technologies is more determined by economics of mass manufacturing and modular deployment, than by input prices of materials and labor.

Global average costs for solar are expected to drop by a further 25% from 2023 levels by the end of the decade, 10%-15% for energy storage, and 10%-15% for offshore and onshore wind, respectively. But these supply chains also rely heavily on China -- policy-driven efforts to build local manufacturing or restrict Chinese imports will inevitably lead to higher costs for markets that implement them effectively.

¹ The energy sector supply side includes upstream oil and gas, midstream and downstream, coal mining, conventional power generation from fossil fuels, nuclear and hydro, transmission and distribution infrastructure and cleantech. Cleantech includes non-hydro renewables, batteries, green hydrogen production and carbon capture, utilization and storage. This analysis does not include investments on the demand side of the energy system, such as on energy efficiency, transport vehicles and networks, buildings and end-use electrification. Operating expenses and decommissioning are also not included.

² This falls short of the UN Climate Change Conference, or COP28, pledge to triple the world's installed renewable energy generation capacity to at least 11,000 GW by 2030, as this pledge includes hydropower. For more details, see the Global Power and Renewables Insight, Jan. 4, 2024: The COP28 pledge to triple renewable capacity by 2030: How difficult is this goal for different governments?

³ Distributed generation includes solar projects smaller than 5 MW and behind-the-meter energy storage. Green hydrogen production includes investment in electrolyzer capacity as well as dedicated renewable capacity to power these electrolyzers.