Who is investing in energy around the world, and who is financing it?

Overall, debt financing is more prominent in the power sector and in Asia, while larger equity shares are seen in fuel supply, as well as in the Middle East and Eurasia.

In clean power, where upfront costs are high and margins are lower, the share of debt financing is currently around 50 per cent. Tom Brewster Photography.

This article was published by the International Energy Agency on June 25, 2024.

By Cecilia Tam, Head of Energy Investment Unit
Paul Grimal, Energy Finance Analyst
Jeanne-Marie Hays, Energy Modeller and Analyst
Haneul Kim, Energy Policy Analyst

Understanding the current landscape for energy investment is key to mobilizing more spending

Meeting global goals for sustainable development, climate and energy security requires a substantial increase in capital investment in the energy sector. Debate on this topic tends to focus on the headline numbers, which are measured in the trillions. But in order to understand the prospects for a rise in investment, an essential starting point is understanding who is making investments in energy today, as well as who is financing these investments. Based on first-of-its-kind analysis in the 2024 edition of the IEA’s flagship World Energy Investment report, this commentary explores these important questions and identifies key trends over the past decade based on the latest data.

This commentary is divided into three parts. The first section looks at the capital structure of energy investments, or how debt and equity are used to finance spending on energy assets and companies. The second examines the entities making investment decisions, from governments and state-owned enterprises to households and private firms. The third assesses which entities are providing financing for these investments, evaluating the role of the commercial and public sectors, as well as development finance institutions. It then outlines the potential implications of these dynamics for energy transitions around the world.

Investments in fossil fuel supply see larger equity stakes, while debt financing is important for the clean energy sector

The capital structure of investment in the global energy sector has remained stable since 2015. Currently, debt accounts for around 46 per cent of total spending and equity for 54 per cent. Overall, debt financing is more prominent in the power sector and in Asia, while larger equity shares are seen in fuel supply, as well as in the Middle East and Eurasia.

Given high energy prices following the pandemic and Russia’s invasion of Ukraine, fossil fuel companies have been in a position to reduce their debt levels in recent years. They now have leverage ratios of 40 per cent on average, below the typical 45 per cent across the whole energy sector. In 2022 alone, net income for fossil fuel producers is estimated to have neared USD 4 trillion. Consequently, they have been able to finance investments primarily through retained earnings, while returning cash to shareholders via generous buybacks and record dividends.

National oil companies (NOCs) rely less on debt spending than their peers, tapping it for around 35 per cent of total investment. Since NOCs typically generate sufficient income from upstream assets to cover their capital requirements, they tend to use debt either to finance a rapid increase in production or to grow new business areas, though their strategic and financial autonomy is shaped by their host governments.

In clean power, where upfront costs are high and margins are lower, the share of debt financing is currently around 50 per cent. Meanwhile, debt financing in end-use sectors, including industry, buildings and transportation, is close to the 45 per cent average. In contrast, the debt share is significantly lower – around 20 per cent – for clean fuels and other emerging technologies, such as battery storage or hydrogen supply. These nascent technologies are associated with higher risks, so developers tend to obtain financing through venture capital rather than debt markets.

There are also notable geographic distinctions. The share of debt spending is particularly low in the Middle East and Eurasia, at 38 per cent, mainly due to the higher share of equity financing and a greater share of fossil fuels in the energy mix. In China, Japan, Korea and other Asian countries, the share of debt is higher, at around 50 per cent, due to a greater proportion of state-owned firms in the energy sector, which typically generate less cashflow.

To see animated versions of these graphs, click here.
To see animated versions of these graphs, click here.

Corporates account for the greatest share of energy investments, but households and governments play crucial roles

The share of investment by households has doubled since 2015 as clean energy transitions have accelerated. It now stands near 18 per cent following recent spending from higher-income households on rooftop solar, energy efficiency improvements, heat pumps and EVs. Some 10 per cent of this investment is supported by governments in the form of grants or tax incentives, especially in advanced economies.

The growing role of households is evident in recent data. In 2023, the share of investment by households relative to total energy spending reached 29 per cent in Japan and Korea and 27 per cent in Europe, followed by 11 per cent in North America. Spending on improving energy efficiency in buildings accounted for 50 per cent of all energy-related investments in Japan, Korea and Europe last year. In North America, fuel supply accounted for a higher share of total investment, resulting in a lower proportion of household investment in the energy mix.

Government investment in global energy assets has remained stable at around 37 per cent since 2015. Governments play a particularly prominent role in fossil fuel asset ownership via national oil companies, which means they are most involved in the energy sector in regions such as the Middle East, Russia and Eurasia, as well as in some producer economies in Latin America and Africa. Meanwhile, more than half of all energy investment in emerging and developing economies, including China, is made by governments or state-owned enterprises, compared with just 15 per cent in advanced economies.

To see animated versions of these graphs, click here.

Energy sector investments largely rely on financing from commercial sources

Currently, more than three-quarters of global energy investment is financed by commercial sources1. Around 25 per cent comes from public finance2 and 1 per cent from development finance institutions (DFIs)3. Despite its small overall share, development finance plays a crucial role in mobilizing commercial finance, particularly for clean energy investment in emerging and developing economies. Public finance also plays a significant role in these economies, accounting for 32 per cent of spending between 2015 and 2023, compared with 11 per cent in advanced economies.

Public finance is more prominent in certain parts of the energy system. Almost a quarter of financing for fossil fuel projects comes from public sources, primarily due to high government shareholding in national oil companies. Public actors also finance 30 per cent of transmission projects globally, compared with 20 per cent for distribution projects. (Despite deregulation in the 1980s, transmission companies remain natural monopolies with high barriers to entry and economies of scale, explaining the greater reliance on public funding.) Public stakeholders also tend to be more involved in financing certain power assets that are crucial for energy security strategies, especially in the case of nuclear power.

End-use sectors see much higher shares of commercial financing: 75 per cent for industry, 80 per cent for buildings, and 85 per cent for transport. Public financing in industry is widespread in certain countries where large state-owned enterprises (SOEs) drive industry development, such as China and Saudi Arabia.

In emerging and developing economies outside China, public institutions account for 25 per cent of all financing in the energy sector, underscoring the significant role of state-owned enterprises, and 4 per cent is financed by development finance institutions. In China, a remarkable 40 per cent of financing is attributed to public finance, reflecting high public equity stakes in private corporations and SOEs.

To see an animated version of this graph, click here.

Energy investment and financing sources have important implications for global transitions

This breakdown of investment flows by capital structure, the entity making the investment and the entity providing finance provides a much more granular understanding of how capital flows into energy sector projects. It also has vital implications for the future, including for the pace of clean energy transitions.

  • Debt financing is more common for projects with lower technology risks and relatively predictable long-term revenues, so it tends to play a large part in investment in clean sources of generation – such as solar or wind projects backed by contracts for difference4 or power purchase agreements – or grid investments that have regulated tariffs. The shift towards a more electrified, renewables-rich energy system would therefore imply greater reliance on debt financing over time. However, much depends on the broader context of debt levels and debt sustainability, especially in emerging and developing economies, and on the ability to scale up of concessional debt financing from development finance institutions.
  • There are wide country-by-country variations in the types of entities making investments, ranging from a high reliance on private firms in North America to a similarly high reliance on governments and state-owned enterprises in China, the Middle East and Eurasia. Overall, half of all energy investments in emerging and developing economies are made by governments or SOEs, compared with just 15 per cent in advanced economies. The financial sustainability and investment strategies of SOEs, including national oil companies and publicly-owned utilities, are therefore crucial for the future of energy investments in emerging and developing economies and for the speed and security of energy transitions.
  • Households are emerging as important investment actors due to growing spending on consumer-facing clean energy technologies, such as rooftop solar, energy efficiency improvements, heat pumps and electric mobility. However, as highlighted in the recent IEA special report on strategies for affordable and fair clean energy transitions, the upfront costs of these investments are beyond the means of most households. Well-designed policies are required to bring clean energy technologies to households and communities that would otherwise be underserved.
  • Clean energy investment has been rising, but still falls well short of what is required to meet global growth in energy demand in a sustainable way, especially in emerging and developing economies outside China. A relatively high cost of capital remains one of the largest barriers to investment in clean energy projects and infrastructure in these economies. Macroeconomic and country-specific factors are the major contributors to the high cost of capital for clean energy projects, but so, too, are risks specific to the energy sector. Alongside actions by national policy makers, enhanced support from development finance institutions is essential to lower financing costs and bring in much larger volumes of private capital.
  1. “Commercial finance” includes equity investments (including cash and savings) made by private enterprises and households, alongside debt from commercial banks and financial institutions. It also includes some finance from public financial institutions, such as state-owned banks, sovereign wealth funds and pension funds, although this includes a degree of state-directed lending, especially in emerging economies with strong industrial policies.
  2. “Public finance” includes public equity stakes in private corporations and state-owned enterprises, state subsidies and tax incentives, as well as finance from some state-owned financial institutions, such as export credit agencies, as well as central banks.
  3. Finance also comes from development finance institutions (DFIs) that have an explicit development mandate. DFIs can be domestic (as in the case of BNDES in Brazil and PTSMI in Indonesia) or international, and the latter can be bilateral (such as the Agence Française de Développement, Germany’s KfW, and the Japan International Cooperation Agency), or multilateral (such as the World Bank, the Asian Development Bank or the African Development Bank).
  4. Contracts for difference are mechanisms to foster investments in a power generation asset with significant upfront costs and capital-intensive expenses by providing price visibility over the long term.


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