Investment in energy transition reached a tipping point in 2023, as governments, companies and investors continued to deploy capital in decarbonization despite deteriorating macroeconomic conditions.

International Energy Agency (IEA) forecasts showed clean energy received 70 percent more investment than hydrocarbons in 2023, and for the first time ever, solar energy alone was on track to receive more aggregate investment than oil, equating to US$1 billion per day.

Mitigating the impact of climate change has remained the primary driver of this investment, but debate around energy transition has also expanded to encompass issues related to energy security and social justice.

While accelerating toward net-zero, policymakers have had to strike a delicate balance between fulfilling long-term emissions reduction commitments and meeting near-term energy demand. This has been particularly pressing in Europe, where countries dependent on Russian gas supplies have had to use more carbon-intensive fuels (such as coal) to fill energy supply gaps.

In 2023, White & Case worked closely with a broad group of businesses, investors and lenders to understand the complexities of energy transition projects and lay out roadmaps to achieve net-zero emissions by 2050. These are some of the key energy trends we observed throughout the year.

Growth in green M&A

The war in Ukraine took a toll on energy transition timetables and contributed to rising energy costs.

Germany, for example, one of the biggest consumers of Russian gas, had to refire coal-powered plants to ensure energy security. Other countries, including the UK, Ireland, Italy, Spain, Poland and Switzerland, also lagged on energy transition timetables as gas supplies shrank, while the European Commission revised renewable energy targets.

Despite these immediate geopolitical obstacles, governments held firm on long-term net-zero pledges. In the US, the Inflation Reduction Act is delivering a package of incentives and tax credits for renewable energy projects worth more than US$400 billion. Germany still plans to phase out coal from its energy mix by 2038, and Denmark, Norway and Switzerland are all pushing to achieve 100 percent renewable production by 2030.

This ongoing commitment to net-zero in the policy arena has given companies and investors the confidence to continue investing in renewables and green energy.

The oil majors and national oil companies have ramped up M&A investment to diversify away from an overreliance on hydrocarbons. TotalEnergies, for example, has deployed billions of dollars in low-carbon energy capacity as part of a strategy to become a global leader in renewables and have 100 GWs of installed renewable capacity in place by 2030. Shell and BP, meanwhile, have invested heavily in renewable natural gas and green hydrogen. Shell acquired Danish biogas group Nature Energy in a US$2 billion deal in 2023, and BP supported the US$380 million Series C funding round in Electric Hydrogen, the green hydrogen industry’s first unicorn.

Other oil companies have used acquisitions to move into the electric vehicle (EV) and rare minerals markets. Chevron, for example, invested in EV high-speed charging stations company Electric Era Technologies, while ExxonMobil bought up US$100 million of drilling rights for lithium, a key material used in battery production.

Expanded investment options

As capital deployment into energy transition has accelerated, the range of renewable energy assets and carbon emissions reduction technologies receiving investment has expanded.

Governments and companies have recognized that there is no one solution for cutting emissions, and that all levers available must be pulled to meet net-zero targets.

This has seen governments open more opportunities for renewable energy development in areas that haven’t been exploited previously, as seen in the US where the federal government announced the sale of the first-ever offshore wind power lease in the Gulf of Mexico.

The US is also investing in new green energy generation options outside of the core wind and solar power markets. President Biden allocated US$21 billion of the 2023 budget to nuclear and hydrogen programs. This includes small modular reactors (SMRs), smaller nuclear power generation units that provide flexible energy supply and can be used in tandem with renewable energy to ensure stability and consistency of supply. Canada, the UK and France are also working on SMR and nuclear energy plans.

The focus on reducing emissions hasn’t been limited to energy generation, with substantial investment also flowing into capturing emissions from existing hydrocarbon energy sources.

The carbon capture, utilization and storage (CCUS) industry has been identified as a crucial piece of the energy transition puzzle, particularly in the US where the Inflation Reduction Act includes carbon oxide sequestration in its package of tax credits for clean energy solutions. CCUS is seen as an important short-term solution for ensuring energy security, while also reducing emissions, as the world gradually decouples energy systems and economies from hydrocarbons.

Major oil companies have been among the biggest investors in CCUS, with ExxonMobil joining forces with Mitsubishi Heavy Industries to deploy new carbon-capture technology across ExxonMobil’s emission reduction services for heavy-emitting industrial customers.

Photo by © Songphol Thesakit / GettyImages
Bird’s-eye view of solar panels floating in a dam, providing a source of renewable energy