High fuel prices, inflationary pressures and supply chain bottlenecks, the urgent need to accelerate the energy sector’s transformation to net zero, and the Russian invasion of Ukraine are creating a potent mix of pressures and incentives for energy investors. This new World Energy Investment 2022 (WEI 2022) report is the seventh in our annual series where we provide the global benchmark for tracking capital flows in the energy sector. The importance of this issue has never been higher, for consumers, investors, policy makers and the planet.

Investment trends in recent years have contributed to the crisis that we see today. Previous editions of WEI have repeatedly highlighted shortfalls in energy investment and the possible implications for energy markets, security and emissions. For example, on the opening page of WEI 2019, the Executive Director observed how our analysis highlighted several mismatches demanding a hard look by policy makers and other stakeholders:

“Current market and policy signals are not incentivising the major reallocation of capital to low-carbon power and efficiency that would align with a sustainable energy future. In the absence of such a shift, there is a growing possibility that investment in fuel supply will also fall short of what is needed to satisfy growing demand. And to meet sustainable development goals, much more investment is needed in the regions that face the highest economic and financial constraints, such as in sub-Saharan Africa.”

These risks and mismatches have been exacerbated in the period since 2019. Investment in energy transitions has remained relatively robust, but is still far short of the levels that – according to the IEA’s landmark Net Zero by 2050 Roadmap – would be sufficient to meet rising demand for energy services in a sustainable way. The amount of money going into traditional areas of energy supply, including oil and gas, fell further in 2020 due to the worldwide shock caused by the Covid pandemic. And the worst effects of the pandemic and the economic slump have been felt by the most vulnerable citizens and countries around the world, pushing millions of people back into or towards energy poverty and lessening the investment funds available in developing economies for sustainable recovery; how to accelerate these investments is the crucial issue examined in the 2021 IEA report on financing clean energy transitions in emerging and developing economies.

For these reasons, warning signs about investment in global energy were flashing red well in advance of the Russian invasion of Ukraine. The Russian Federation’s (hereafter, “Russia”) aggression has now added another layer of expectation and uncertainty to the picture. Russia is the world’s largest exporter of oil and gas, and the largest single provider of oil, gas and coal to Europe. Meeting in Versailles in early March, European leaders committed themselves to reducing their dependence on these Russian imports as soon as possible. Following through on this commitment will have momentous implications for energy investment flows. In the near term, the scramble for alternative sources of fossil fuels creates clear openings for non-Russian suppliers. But these opportunities may be time-limited if Europe also responds to today’s crisis with a determined acceleration of investment in efficiency, renewables and other clean technologies.

In the new WEI 2022 we provide a full update on the investment picture in 2021 and an initial reading of the emerging picture for 2022. There remain huge uncertainties over how events will play out in 2022, namely the ongoing war in Ukraine, the outlook for the global economy, and in some countries the continuing public health risks from the pandemic. But some important features of the new investment landscape are already visible, including the energy security lens through which many investments are now viewed, widespread cost pressures, the major boost in revenues that high fuel prices are bringing to traditional suppliers, and burgeoning expectations in many countries that investments will be aligned with solutions to the climate crisis.

The structure of this year’s WEI 2022 is as follows:

In the first chapter we present the overview and key findings. The second chapter covers the power sector, while the third chapter reviews the latest developments and trends in fuel supply investment. The fourth chapter represents a new departure for the WEI in covering investment in critical minerals, an increasingly strategic aspect of energy transitions. The fifth chapter deals with investment in energy efficiency and the end-use sectors, and the sixth chapter brings insights on energy research and development and innovation. The concluding seventh chapter considers trends in energy finance.

While the focus of WEI 2022 is to track investment and financing trends in 2021 and provide an early indication for 2022, the report also benchmarks today’s trends against future scenarios from the IEA World Energy Outlook 2021. The Stated Policies Scenario (STEPS) is based on today’s policy settings and considers aspirational targets only insofar as they are backed by detailed policies. The Announced Pledges Scenario (APS) assumes that all climate commitments and net zero targets made by governments around the world will be met in full and on time. The Net Zero Emissions by 2050 Scenario (NZE Scenario) sets out a narrow but achievable pathway for the global energy sector to achieve net zero CO₂ emissions by 2050.

The preparation of this report benefited greatly from the insights gained at a workshop convened by the IEA on 8 March 2022, which brought together leading experts and practitioners from across the world of energy finance.