June 2023 Energy Megatrend: 45 countries pledge to double pace of energy efficiency progress

This News Covers

• What is the growth forecast for clean energy, green tech and sustainability?
• What was the purpose of the energy efficiency conference held at Versailles?
• What are the trends in investment in clean energy in short term and long term?
• Global Distribution and Growth of Battery Technology Industry
• Which country has biggest Electric Vehicle battery market share?
• What are the Energy Efficiency Goals and their Implications
• The Future of Energy Efficiency
• What investments are lined up for 2023 in energy sector?
• Which are the prominent battery manufacturing plants announced in 2023 or recently?

Global leaders at the International Energy Agency's 8th Annual Global Conference have pledged to double the rate of energy efficiency progress by 2030. A total of 45 governments signed this commitment, acknowledging energy efficiency as a key instrument in enhancing living conditions, ensuring affordable energy, spurring economic growth, and reducing greenhouse gas emissions to reach net-zero by 2050.

MarketsandMarkets welcomes this development and our editors share their views.

“When we look at the numbers, one message is very clear: A new clean energy world is emerging fast - faster than many people realise” - Faith Birol, Executive Director of IEA

The current energy crisis, coupled with climate change, necessitates a resilient, future-focused economic model that aligns with environmental, climatic, and social goals. The forthcoming decade is critical for energy efficiency, requiring swift action and ambitious policy implementation.

According to the IEA, annual energy intensity improvement rates could double to support sustainable economic growth and align with climate objectives. Ambitious efforts across all sectors in different countries are vital to accelerating global energy efficiency progress and reducing energy demand. Governments are encouraged to develop effective policy packages, including behavior change measures, sufficiency measures, and technological improvements.

What is the growth forecast for clean energy, green tech and sustainability?

MarketsandMarkets’ analysts estimate that the global residential energy storage market size will reach USD 1,828 million by 2027, growing at a compound annual growth rate (CAGR) of 20.5% from 2022 to 2027. In addition, the green technology and sustainability market size is projected to grow at a CAGR of 27.8 % during the forecast period to reach USD 60.7 Billion by 2026.

The unprecedented actions seen over the past year to boost energy efficiency and sustainability underscore the need for ongoing ambitious measures. This momentum, fostered by the adoption of digital, demand-driven solutions, highlights the need for reliable data and indicators and coordinated policy action.

The Conference reaffirmed energy efficiency as a key pillar of global energy transition and urged all stakeholders to continue working towards stronger energy efficiency policies and actions.

What was the purpose of the energy efficiency conference held at Versailles?

The International Energy Agency gathered prominent global leaders in energy and climate at a significant ministerial meeting on energy efficiency in France. According to new analysis from the IEA, a doubling of efficiency progress from now until 2030 is required to enhance energy security and affordability while maintaining the objective of capping global warming at 1.5 °C.

The IEA's 8th Annual Global Conference on Energy Efficiency assembled over 700 individuals from more than 80 countries, including over 30 ministers and 50 CEOs, in Versailles. The gathering focused on strategies to expedite improvements in energy efficiency. France’s Minister for Energy Transition Agnès Pannier-Runacher and IEA Executive Director Fatih Birol co-hosted the event, with Schneider Electric acting as a key partner in its organization.

What are the trends in investment in clean energy in short term and long term?

The global landscape of clean energy and battery technology is undergoing significant transformation. Despite China's current dominance, other countries are rapidly scaling up their capacities and investments, potentially leading to a more diversified and competitive global market. Furthermore, the competition extends to different clean energy domains, with a surge in investments in technologies such as renewables, EVs, and storage. The shift toward clean energy is not only a response to the environmental crisis but also indicative of its economic viability and potential for growth. However, most investments are concentrated in advanced economies and China, suggesting the need for global clean energy transitions to pick up pace elsewhere to avoid new divisions in global energy.

1. Recent Investment Trends

Recent trends indicate a mixed trajectory for investments in energy efficiency infrastructure. While there was a boost in 2022, spurred by new policy stimulants in Europe and North America, along with exceedingly high energy prices, a flatlining of investment is anticipated for 2023. This plateauing is attributable to a predicted slowdown in construction activity, coupled with higher borrowing costs and strains on household budgets.

2. Regional Disparities in Clean Energy Investment

More than 90% of the increase in clean energy investment since 2021 has taken place in advanced economies and China. There are, however, bright spots elsewhere, with dynamic solar investment in India, steady deployment in Brazil, and increasing investor activity in parts of the Middle East. However, higher interest rates, unclear policy frameworks, financially-strained utilities, and a high cost of capital are holding back investment in many other countries. Thus, while overall investment in clean energy is on the rise, it is heavily concentrated in certain regions, leaving others behind.

3. Investment in Energy Efficiency Infrastructure: Long-Term Perspective

In the longer term, the trajectory of investment in energy efficiency infrastructure will depend on a range of factors. Policy stimuli and initiatives that incentivize clean energy investment will play a critical role, as will improvements in technology that make clean energy infrastructure more efficient and cost-effective. If trends seen since 2021 continue, then aggregate spending in 2030 on low-emission power, grids and storage, and end-use electrification could exceed the levels required to meet the world’s announced climate pledges.

However, clean energy transitions will need to be globally inclusive and economically viable to ensure sustained investment. If current disparities in clean energy investment between advanced economies and the rest of the world continue, this could lead to new dividing lines in global energy, potentially affecting long-term investment trends.

4. Future Considerations for Investors

For investors looking at the energy efficiency infrastructure sector, there are several considerations. The market dynamics are complex and intertwined with policy decisions, technology advancements, and economic factors. While the sector presents attractive growth opportunities due to increasing global commitment to clean energy, there are also challenges, particularly in emerging markets where policy frameworks and market designs may be less clear, and the cost of capital can be high. Thus, while long-term growth prospects look promising, potential investors will need to navigate these complexities and uncertainties.

5. Accelerated Deployment of Clean Energy Technologies

Investments in the power sector have been significant, growing by 12% in 2022 and crossing the USD 1 trillion mark for the first time, and 2023 is projected to see further growth to nearly USD 1.2 trillion. The ongoing global energy crisis has accelerated the deployment of clean energy technologies, bolstered by the strong underlying economics of renewables and policy initiatives like the US Inflation Reduction Act, the EU REPowerEU plan, and Fit-for-55 package, and India’s renewable targets. In 2023, investment in renewables and grids is expected to exceed USD 1 trillion.

6. Record Investments in Renewables

Global spending on renewables hit an all-time high in 2022, nearing USD 600 billion, primarily driven by solar PV and wind, especially in China. Despite supply chain pressures and increased costs, a reinforced push for renewables in several large markets (e.g., USA, China, Europe, India) is expected to drive higher capacity additions for wind and solar PV, with renewables investment set to increase by 10% in 2023, exceeding USD 650 billion.

7. Fossil Fuel Power and Clean Generation Investments

Despite a slight increase in capital expenditure on fossil fuel power in 2022, it was still significantly lower than the annual average from 2016-2021. Investment in coal-fired power declined, but spending on gas-fired power increased. Investment in fossil fuel power with CCUS (carbon capture, use, and storage) saw an uptick but remains negligible at USD 1 billion. Spending on dispatchable clean generation, including nuclear power, did not compensate for a drop in hydropower investment.

8. Infrastructure Investment and Final Investment Decisions

Infrastructure investments in electricity grids have grown in advanced economies and China, with an 8% increase in 2022, driven by the need for greater electrification and grid balancing in increasingly renewables-rich power systems. However, spending in most emerging market and developing economies (EMDEs) is lagging, signaling concerns given the likely rapid increase in electricity demand. Battery storage investment, boosted by various incentives in the US, Europe, Australia, China, Japan, and Korea, is also expected to grow further in 2023. Final investment decisions (FIDs) in 2022 showed a mixed picture, with strong solar project approvals but lagging offshore wind, and a spike in FIDs for coal- and gas-fired plants, primarily driven by China.

Global Distribution and Growth of Battery Technology Industry

Key countries in the battery tech manufacturing industry are China, Japan, South Korea, the United States, Germany, and India, hosting major EV firms like Tesla, Ford, and XPeng. These nations have well-established supply chains and infrastructure, supporting large-scale battery production, including lithium-ion, lead-acid, and nickel-metal hydride batteries. Notably, Chinese firms dominate the EV battery market, commanding 56% of the market share. The global battery technology market size is expected to grow from $95.7 billion in 2022 to $136.6 billion by 2027, driven by increased adoption of EVs and wearables.

Which country has biggest Electric Vehicle battery market share?

The total EV battery industry is experiencing growth due to global EV adoption, declining battery prices, and increased investment from automobile OEMs. While the industry is challenged by less energy-dense batteries and potential lithium mining capacity shortages, opportunities arise from expanding lithium-ion battery capacity and the growing acceptance of electric mobility in emerging nations. China leads in EV battery production and supply chain, while Korean and Japanese companies also hold significant shares in the market.

Chinese firms lead the EV battery market with a 56% share, followed by Korean companies at 26%, and Japanese at 10%. Chile has the largest lithium reserves of 8 million tons. The global battery technology market size is expected to grow from $95.7 billion in 2022 to $136.6 billion by 2027 at a CAGR of 7.4%. Currently, 948 GWh of Li-ion battery capacity is globally deployed with a significant portion, 274 GWh, being used for EV production. Between 2021 and 2027, Li-ion battery demand from light vehicles is predicted to grow at a CAGR of about 40%, reaching around 2,050 GWh. Installed battery capacity is expected to increase by 23.5% CAGR to 3,371 GWh in 2027. China's CATL and BYD produced 137.7 GWh and 51.5 GWh respectively of lithium-ion batteries in 2022. The US is expected to increase its production from 44 GWh in 2021 to 91 GWh by 2025. - IEA

1. Inter-Country Competition

China, at present, leads the global battery manufacturing stage, with over 75% of the total existing battery manufacturing capacity in 2022. Despite contributing to two-thirds of yearly global capacity additions projected up to 2030, China's global capacity share could reduce by nearly 10% by the decade's end. This development signals an intensifying competition among countries in the battery tech sector.

Manufacturing plans announced by other nations like the United States and those in Europe hint at potential competition. These countries are investing heavily in battery storage for power, which is expected to near USD 40 billion in 2023, approximately double the 2022 level. The wave of new lithium-ion battery manufacturing projects worldwide is stimulated by record EV sales, robust investments, and policymakers' push to scale up domestic supply chains. If these plans materialize, a staggering 5.2 TWh of new capacity could be available by 2030.

The competition is not confined to battery manufacturing. Major economies and China have been responsible for over 90% of the clean energy investment increase since 2021. Notably, the rise in clean energy investments in these regions since 2021 surpasses the total clean energy investment in the rest of the world.

2. Competition in Clean Energy Domains

The competition in clean energy domains is equally fierce. Investment in clean energy technologies, including renewables, electric vehicles, and storage, is notably outstripping spending on fossil fuels. From 2021 to 2023, the annual clean energy investment is expected to rise by 24%, driven by renewables and EVs, compared to a 15% rise in fossil fuel investment.

This trend is supported by improved economics amidst high and fluctuating fossil fuel prices, enhanced policy support, and alignment of climate and energy security goals. It is evident in renewable power and EVs, with batteries, heat pumps, and nuclear power also making important contributions. By 2023, low-emissions power is projected to constitute almost 90% of the total investment in electricity generation.

Solar power is emerging as a star performer, with daily investments expected to exceed USD 1 billion in 2023. This sum is estimated to surpass the spending in upstream oil for the first time, with the total investment for the year projected to be USD 380 billion.

The demand for EVs is booming, with sales expected to leap by over one-third this year following a record-breaking 2022. As a result, investment in EVs has more than doubled since 2021, amounting to USD 130 billion in 2023.

What are the Energy Efficiency Goals and their Implications

Per IEA, China's capacity of Lithium-ion battery manufacturing was 1.20 TWh. It is set to grow to 4.65 TWh. Whereas, United States's capacity of Lithium-ion battery manufacturing was 0.11 TWh. It is set to grow to 1.03 TWh.

The recent ministerial pledge at the 8th Global Conference on Energy Efficiency aims to double the average global rate of energy efficiency improvements by 2030. Such an ambitious goal, if achieved, would put the world on a path towards net-zero emissions. This is significant because energy efficiency, often referred to as the "first fuel," is one of the most cost-effective ways to support sustainable economic growth, enhance living standards, bolster energy security, and advance the clean energy transition. Doubling the annual efficiency progress from 2.2% to over 4% could result in several socio-economic benefits like job creation, expanded energy access, reduced energy bills, and decreased air pollution.

The Versailles Statement and Its Impact

The Versailles Statement urges parties participating in the upcoming COP28 Climate Change Conference to strengthen energy efficiency policy implementation, aligning with the Paris Agreement's objectives. Policies promoting energy efficiency can drive behavior change among consumers and businesses, with targeted actions to support vulnerable and low-income households. The statement prioritizes digitalization, demand-driven solutions, and modernizing electricity grids, all of which are essential for fostering energy efficiency. Moreover, it emphasizes the need to address energy poverty, promote clean cooking, and tackle gender-related energy issues.

Public Sector's Role and Private Sector's Contribution

The conference reaffirmed the public sector's role as a trailblazer in improving energy efficiency and stimulating investments. The updated Sønderborg Action Plan, developed by the IEA, provides a strategic guideline to aid governments in rapidly implementing robust energy efficiency policies. Concurrently, the private sector's role in driving energy efficiency through innovation, investment, and development of digital solutions was highlighted and encouraged.

The Future of Energy Efficiency

The IEA's briefing report, "Energy Efficiency: The Decade for Action," sheds light on the myriad benefits energy efficiency improvements can bring to societies worldwide. The efficiency sector, which currently employs tens of millions of people, could create another 12 million jobs by 2030 with increased ambition and action. Furthermore, by fostering more efficient and lower energy demand, progress towards universal access to modern energy in emerging and developing economies can be accelerated. The focus on energy efficiency in these economies will be central to the next IEA Global Conference to be held in Nairobi, Kenya, in 2024. This illustrates the global commitment to energy efficiency and the role it plays in achieving sustainability and climate targets.

The surge in clean energy investments is driven by several factors such as high fossil fuel prices, supportive policies, alignment of climate and energy security goals, and a focus on establishing a stronghold in the clean energy economy. Renewables and EVs are leading the momentum, with solar investments expected to surpass upstream oil investments for the first time in 2023. Consumer demand for electric cars and heat pumps is also booming. China currently dominates global battery manufacturing, though this is expected to slightly decline by the end of the decade due to new manufacturing plans worldwide. The rise in clean energy investment has been three times greater than fossil fuel investment since 2021. If this trend continues, spending in 2030 on low-emission power, grids, storage, and electrification could surpass the levels required to meet announced climate pledges.

What investments are lined up for 2023 in energy sector?

About USD 2.8 trillion is set to be invested globally in energy in 2023, of which more than USD 1.7 trillion is expected to go to clean technologies – including renewables, electric vehicles, nuclear power, grids, storage, low-emissions fuels, efficiency improvements and heat pumps – according to the IEA’s latest World Energy Investment report. The remainder, slightly more than USD 1 trillion, is going to coal, gas and oil.

The IEA World Energy Investment 2023 report suggests a significant shift towards cleaner energy technologies, with investments far exceeding those in fossil fuels. The appeal of sustainable options is fuelled by concerns around affordability and security in the face of the global energy crisis. From 2021 to 2023, clean energy investment, predominantly in renewables and electric vehicles, is anticipated to increase by 24%, as opposed to a 15% rise in fossil fuel investment. However, over 90% of this growth is originating from advanced economies and China. This discrepancy risks creating a global energy divide if other regions don't escalate their clean energy transitions. Therefore, it is crucial to ensure broader geographic participation in these investment trends to avoid exacerbating global energy inequality and to secure a truly global transition to sustainable energy sources.

Which are the prominent battery manufacturing plants announced in 2023 or recently?

1. Group's lithium-ion cell manufacturing plant, India: This significant investment could help India achieve its goal of creating a self-reliant EV supply chain, providing a domestic source of lithium-ion cells for the burgeoning EV market. With the backing of Tata Group, the project stands a good chance of success. Moreover, it boosts India's commitment to renewable energy, fostering its competitiveness in the global EV landscape. [1]
2. KORE Power's lithium-ion battery plant, U.S.: KORE's planned lithium-ion battery plant, supported by a significant loan from the U.S. Department of Energy, stands to enhance the United States' EV battery manufacturing capabilities. It could contribute to a robust domestic supply chain, reducing dependence on foreign manufacturers, and enhance competitiveness in the rapidly evolving EV market.[2]
3. Toyota's EV battery plant, North Carolina: Toyota's move signifies its commitment to the shift towards electric mobility. The establishment of a local production hub for lithium-ion batteries, coupled with the assembly of an electric SUV, bodes well for the domestic EV industry. This can enhance the supply chain, create jobs, and bring new technology development to the region.[3]
4. BlueOval SK Battery Park, Kentucky & LG-Honda battery plant, North America: Both Ford's and Honda's joint ventures with Korean partners signify the commitment of traditional automakers to the EV transition. These factories will not only secure a local battery supply for their EVs but also position the US as a crucial player in the global EV battery manufacturing landscape.
5. Anovion Tecnologies' graphite anode factory, Georgia: The production of synthetic graphite anodes in the US marks a step towards localizing the entire EV battery supply chain. This development could bolster the competitiveness of American EV manufacturers and reduce the industry's reliance on overseas suppliers.[4]
6. GOTION High-Tech's gigafactory, Morocco: This venture is significant for Africa's EV industry as it marks the establishment of the continent's first gigafactory dedicated to EV batteries and energy storage systems. This could spur economic growth and job creation, positioning Morocco as a leader in Africa's automotive industry.[5]
7. Panasonic's third EV cell factory, United States: Panasonic's decision to build a third factory strengthens its partnership with Tesla and expands its footprint in the American market. This continued investment could boost the US's battery production capabilities, fostering a more robust and self-reliant EV ecosystem.[6]
8. LG Energy Solution: is teaming up with Hyundai to build a $4.3 billion electric vehicle (EV) battery manufacturing plant in Savannah, Georgia. The construction is set to start in 2023, with the aim of beginning production in 2025. The factory is expected to have a capacity of 30 GWh, sufficient to support around 300,000 EVs. LG Energy Solution's CEO, Youngsoo Kwon, highlighted their commitment to advancing product competitiveness and sustainable energy solutions in the US market.[7]

References

1. Livemint
2. Marketwatch
3. Electronics360< /a>
4. AP News
5. Morocco World News
6. InsideEVs
7. IoT World Today