Energy investment within Europe is set to decline, according to an ING report, as European utilities grow more selective
In European Utilities Outlook: More Investment but More Selective in 2024, ING’s head of corporates sector strategy Nadège Tillier noted that investment grew by 10% a year between 2018 and 2022. Despite this, she contended 2024 would now see increases limited to 5%.
“We see two reasons for this,” Tillier explained. “Investments saw an exponential expansion from 2021 to 2023 and the growth is now returning to a more average level. With (renewable) projects now more expensive, as seen with Orsted and Vattenfall, European utilities have become more selective as they want to secure an appropriate level of return on investment.”
Despite the decline, ING predicted investment in renewals, which accounted for a third of total investment in 2018, would rise to a little over half of total investment by 2024. Concurrently, capital expenditure for conventional power generation would go drop from 39% in 2018 to 22% in 2024, the firm said.
Not all investments, added Tillier, would be on the continent. “In 2024, we estimate 70% of the investments made by European integrated utilities will be earmarked for Europe with 30% outside the region – a ratio similar to 2023,” she said. “Internationally, European integrated utilities’ favourite destinations are North, South and Central America. The US has been an attractive place for renewable investments through fiscal incentives.”
At the beginning of 2023, the Biden Administration’s Inflation Reduction Act restarted a $10bn tax credit for clean energy producers, the report noted. “Due to their historical ties with Latin and Central America, Southern European utilities have and continue to invest heavily in these regions,” added Tillier. “With strong growth potential for renewable energy demand and grid services in these regions, Spanish, Portuguese and Italian integrated utilities are committing up to 60% of their total investments outside their European market presence.”
The cooling off in energy investment is unlikely to help the sector, however. Last year, the European Investment Bank released its Energy Overview 2023. That report said EU-based energy investment needed to double to reach more than €400bn this decade.
“Data from the European Commission show that EU-based energy investment needs to double from the past decade, to more than €400bn a year this decade, to meet the EU objective of reducing greenhouse gas emissions by at least 55% by 2030 compared with 1990,” the report explained. “This includes some €300bn in annual investment needed for energy efficiency, and some €120bn needed for renewable energy plants and electricity grids.”