Capital Flows To Energy Sector Set To Rise In 2025 To USD 3.3 Trillion
Ten years ago, investments in fossil fuel supply were 30% higher than those for electricity generation, grids and storage
Despite elevated geopolitical tensions and economic uncertainty, the tenth edition of the IEA’s World Energy Investment shows that capital flows to the energy sector are set to rise in 2025 to USD 3.3 trillion, a 2% rise in real terms on 2024.
Around USD 2.2 trillion is going collectively to renewables, nuclear, grids, storage, low-emissions fuels, efficiency and electrification, twice as much as the USD 1.1 trillion going to oil, natural gas and coal. Open questions about the economic and trade outlook means that some investors are adopting a wait-and-see approach to new project approvals, but we have yet to see significant implications for spending on existing projects.
Rapid growth in spending on energy transitions over the past five years was kicked off by post-pandemic recovery packages and then sustained by a variety of economic, technology, industrial and energy security considerations, not only by climate policies. Some 70% of the increased spending came from net fossil fuel importers. This was led by China’s drive to reduce reliance on oil and gas imports and exert leadership in new technology areas. Europe’s push to accelerate spending on renewables and efficiency gains after Russia’s full-scale invasion of Ukraine and the consequent cut to pipeline gas deliveries; and a pick-up in spending on solar in India. Another 20% of the increase came from the United States, where supportive policies were motivated in part by the desire to challenge China’s position in emerging clean technology supply chains. Emissions reductions provide a powerful reason to invest, but are often not the primary driver for investment in technologies that are increasingly mature and cost-competitive.
Investment trends are being shaped by the onset of the ‘Age of Electricity’ and the rapid rise in electricity demand for industry, cooling, electric mobility, data centres and artificial intelligence (AI).
Ten years ago, investments in fossil fuel supply were 30% higher than those for electricity generation, grids and storage. Today, these positions are reversed. Investment in the electricity sector is set to reach USD 1.5 trillion in 2025, some 50% higher than the total amount being spent on bringing oil, natural gas and coal to market.
There is also increasing expenditure on the electrification of end-uses, largely reflecting the additional cost of buying an electric vehicle (EVs) versus an internal combustion engine model, even though many EV models being sold in China – the leading market for sales – are now competitive on an up-front basis with their conventional equivalents.
Spending on low-emissions power generation has almost doubled over the past five years, led by solar PV. Investment in solar, both utility-scale and rooftop, is expected to reach USD 450 billion in 2025, making it the largest single item in our inventory of the world’s investment spending. Fierce competition among suppliers and ultra-low costs are seeing imported solar panels, often paired with batteries, become an important driver of energy investment in many emerging and developing economies.
Chinese solar exports to developing economies surpassed those to advanced economies in early 2025, with countries such as Pakistan having imported a reported 19 GW in 2024 alone (equivalent to about half the country’s grid-connected electrical capacity). Global spending on batteries for power sector storage is set to reach USD 66 billion this year.
Nuclear investment is making a comeback, rising by 50% over the past five years, and approvals of new gas-fired power are rising. Spending on new nuclear plants and refurbishments is set to exceed USD 70 billion, with the promise of further growth given the burgeoning interest in new technologies such as small modular reactors. The United States and the Middle East accounted for nearly half of a resurgent level of Final Investment Decisions (FID) for natural gas power.
Fast-growing electricity use and concerns about electricity security underpinned a wave of coal plant approvals in China. China gave the green light to almost 100 GW of new coal-fired plants in 2024, and India a further 15 GW, pushing global approvals to their highest level since 2015. By contrast, for the first time on record, there were no new steam turbine orders for coal-fired power plants in advanced economies in 2024.
Investment in grids is struggling to keep pace with the rise in power demand and renewables deployment. Each year, some USD 400 billion is now spent on grids worldwide, compared with around USD 1 trillion on generation assets. Maintaining electricity security amid rising electricity use requires a rapid increase in grid spending, moving towards parity with the amount spent on generation. However, this is being held back by lengthy permitting procedures, tight supply chains for transformers and cables, and – especially in developing economies – by the poor financial condition of many utilities.
Lower oil prices and demand expectations are set to result in a a 6% fall in upstream oil investment in 2025, the first year-on-year decline since the Covid slump in 2020 and the largest since 2016. Our initial expectation for 2025, based on company announcements, was that upstream oil and gas spending would be flat, but sentiment has since become more downbeat as oil prices came under pressure. While spending in natural gas fields is set to maintain the levels seen in 2024, lower expenditure on oil brings our expectation for overall upstream oil and gas investment for 2025 to just under USD 570 billion, a decline of around 4%. Of this, 40% is dedicated to slowing down production declines at existing fields.
Global refinery investment in 2025 is set to fall to its lowest level in the past 10 years. Its short investment cycle makes US tight oil the bellwether for changing market dynamics, with an anticipated fall of almost 10% in spending in 2025. Nonetheless, a recent wave of consolidation and technology improvements have kept costs in check and production is still set to grow in 2025.
The writer of this article is Dr. Seema Javed, an environmentalist & a communications professional in the field of climate and energy
