The Green Energy Market Is Underfunded, Creating a Multi-Trillion Dollar Opportunity for Investors

The International Energy Agency estimates that global investment in clean energy technologies reached a record $1.8 trillion in 2023. This figure includes investments not just in renewable energy, but in electric vehicles, hydrogen production systems and other clean energy technologies. As impressive as this number sounds, it’s a drop in the bucket compared to the $196 trillion that will be required to put the world on a net-zero pathway to limit the global temperature increase to 1.5 degrees Celsius by 2050, according to BloombergNEF, Bloomberg’s green energy research team. 

The gap between where things stand and the investment needed opens up unprecedented opportunities for today’s investors. The race is on for companies to transition to a net-zero future, and the current value of the climate market is just the tip of the iceberg of where it is likely headed over the next decade. 

“Renewable energy could very well impact every company in every industry in the world,” says Gary Buxton, Head of EMEA ETFs at Invesco. 

He adds that investors who overlook this seismic shift could miss out on potentially “the biggest investment theme of our generation.” 

Despite the promise of renewable energy sources like solar, wind and green hydrogen, lots of variables—from underdeveloped infrastructure to geopolitical tension—make the future of any given sector hazy. 

Investment in wind, for example, dropped 8% last year as a result of grid constraints, permitting challenges and faltering policy support, according to Invesco, but tax credits and the easing of permitting restraints could easily drive growth in the next few years. 

“The obvious unknown is the pace at which the transition will occur, which certainly makes it difficult for investors to pick winners in the clean energy space,” says Buxton. 

He believes interested investors should consider taking a broad strategic approach that maximizes exposure to a wide range of climate solutions. Thematic ETFs that track renewable energy technologies are an increasingly popular solution for investors who wish to build climate resilience into their portfolios. 

Invesco was an early adopter in the renewable space. It launched its first renewable energy index-linked product in the US in 2005. In 2021, it launched a similar range in Europe, seeking to track an index created by the same specialist provider. Invesco continues to innovate by looking for new opportunities for investors to access via its efficient ETF structure.

In addition to its wide range of broad ESG ETFs, Invesco’s European business takes a more targeted approach to capture the vast opportunities in the clean energy space via its thematic ETFs. These include a renewable energy ETF range and other strategies that focus on specific technologies, such as solar, wind and hydrogen. Alongside its index partners, the EMEA ETF team continuously seeks to identify ways to help investors capitalize on these growing opportunities.

The world’s transition to clean energy hinges on several technologies that provide promising investment opportunities. Investors interested in being part of the clean energy transition need to think beyond just wind and solar. 

Green hydrogen will likely play a critical role in our energy future, potentially decarbonizing energy-heavy sectors like aviation and shipping, where electrification solutions are inefficient or even impossible. 

Although there is limited production of green hydrogen today, $280 billion in new subsidies worldwide combined with technological advances that have driven down costs make the hydrogen sector one of the most promising investment areas. 

Power grids are another pivotal part of the transition story. According to a 2023 BloombergNEF report, the world’s electricity network will need to extend to over 152 million kilometers—farther than the distance to the Sun—to meet the demands of a net-zero world, presenting an estimated $21.4 trillion investment opportunity. 

A rapid scale-up of renewable energy will also require power storage—an estimated 16x today’s capacity. This all points to a plethora of opportunities that Invesco—via its renewable energy thematic ETF range—is primed to offer.