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The International Energy Agency (EIA) has projected a record $3.3tn in global energy investment for 2025, with clean energy receiving more than twice the funding of fossil fuels. The World Energy Investment 2025 report forecasts $2.2tn for clean technologies, while fossil fuels are expected to attract $1.1tn. Solar PV leads with $450bn, followed by nuclear at $75bn and battery storage exceeding $65bn. China remains the top investor, almost matching the combined spend of the EU and the US. However, grid investment lags at $400bn. Africa accounts for only 2% of clean energy funding despite comprising 20% of the global population. (reNews)
Why does this matter? As the IEA notes, the spending increase is not only related to emission reduction efforts but also the rising impact of industrial policy and energy security priorities. The increasing cost-effectiveness of electricity-based solutions is another factor. It also supports the rising demand for electricity – set to increase by almost 4% annually to 2027 – and the goal of tripling renewable capacity by 2030 to limit global warming to 1.5C, agreed at COP28 in 2023. This development will be particularly relevant to Rio Tinto as a key supplier of materials required for the global energy transition.
While the growth in clean energy is encouraging, the lack of investment in grid infrastructure is a concern. The IEA notes that grid investment is expected to surpass $400bn for the first time this year, marking a 20% increase over the past decade. Still, it is failing to keep pace with the rapid deployment of renewables. Approximately $0.40 is invested in grids for every dollar spent on new generation capacity. With 1,650 GW of wind and solar awaiting connection globally, urgent reforms are needed to bring these online.
Grid investment is also essential for boosting and maintaining energy security. For example, the blackout that hit Spain and Portugal in April exposed vulnerabilities in outdated infrastructure and weak interconnections. Currently, Spain has just 5% of connections beyond the Iberian Peninsula. The EU is targeting 15% interconnection by 2030. Additionally, the bloc’s power grid is ageing and lacks battery storage capacity. The European Commission has projected that the EU will need to invest up to $2.3tn in upgrading grids by 2050.
Over 80 million km of grids globally must be replaced or added by 2040 if countries are to meet their green targets and achieve energy security, according to the IEA. This includes the expansion and addition of grid connections within and across countries, supporting large-scale transmission projects and digitalisation to bolster grid resilience and flexibility. These matters need urgent attention as planning, permitting and completing new infrastructure can take up to 15 years.
Another emerging issue is that rising demand for transmission capacity is straining supply chains for cables, transformers and key materials. Prices and lead times for critical grid components have almost doubled in the past five years. Cable procurement can take up to three years and four years for large power transformers. Cable prices have doubled since 2018, while transformers are up by 75%. In addition to growing demand, prices are also being driven up by material costs for copper, electrical steel and aluminium. Manufacturers are expanding capacity, but labour shortages remain a problem. Moreover, global trade is becoming increasingly vital to balance supply and demand.
Without substantial and timely upgrades to grid infrastructure, achieving global climate targets and ensuring energy security will remain out of reach.