IEA: In Europe, Cumulative Investment of USD 2.2 Trillion Needed to Replace Ageing Infrastructure and Meet Decarbonisation Goals

Meeting the world’s growing need for energy will require more than USD48 trillion in investment over the period to 2035, according to the World Energy Investment Outlook released by the International Energy Agency (IEA), a first full update since the 2003 Investment Outlook.  In Europe, USD 2.2 trillion cumulative investment shall be needed to replace ageing infrastructure and meet decarbonisation goals. The report highlights the rising role of governments in shaping investment decisions through policy measures and incentives. Stephan Kohler, head of the Germany Energy Agency (dena) called the report a confirmation of dena’s position regarding the need for conventional power plants.

1. Global Investment Bill up to 2035

IEA explains the cumulative global investment bill to 2035 as follows:

“Of the cumulative global investment bill to 2035 of USD48 trillion in the report’s main scenario, around USD40 trillion is in energy supply and the remainder in energy efficiency. Of the investment in energy supply, USD 23 trillion is in fossil fuel extraction, transport and oil refining; almost USD 10 trillion is in power generation, of which low-carbon technologies – renewables (USD 6 trillion) and nuclear ($1 trillion) – make up the lion’s share; and a further $7 trillion in transmission and distribution. More than half of the energy-supply investment is needed just to keep production at today’s levels, that is, to compensate for declining oil and gas fields and to replace power plants and other equipment that reach the end of their productive life. The USD 8 trillion of investment in energy efficiency is concentrated in the main consuming markets, the European Union, North America and China: 90% is spent in the transport and buildings sectors.”

2. Latest IEA Data on World Energy Investment

New IEA data show that “annual investment in new fuel and electricity supply has more than doubled in real terms since 2000, with investment in renewable source of energy quadrupling over the same period, thanks to supportive government policies.” “Investment in renewables in the European Union has been higher than investment in natural gas production in the United States”, IEA says, adding that renewables, “together with biofuels and nuclear power, now account for around 15% of annual investment flows, with a similar share also going to the power transmission and distribution network. But a large majority of today’s investment spending, well over $1 trillion, is related to fossil fuels, whether extracting them, transporting them to consumers, refining crude oil into oil products, or building coal and gas-fired power plants.”

3. Role of the States and Risks for Europe

“In the electricity sector, administrative signals or regulated rates of return have become, by far, the most important drivers for investment: the share of investment in competitive parts of electricity markets has fallen from about one-third of the global total ten years ago to around 10% today”, IEA states.

The report also points out that renewables account for 75% of the investment in new power plants to 2035. However, despite excess capacity today, 100 GW of new thermal capacity are said to be needed in the decade to 2025 to maintain the reliability of power systems. “Reform of the wholesale market will be critical to make this a reality, as we estimate that wholesale prices in 2013 are $20/ MWh (or 23%) below the level that would incentivise needed investments.”

For Europe, the report details how current market rules do not incentivise the investment needed in new thermal power plants, with implications – if these rules do not change – for the reliability of European electricity supply (for more information in short, please see the English Executive Summary, page 3).

4. Response by dena to IEA Findings and Conclusions

The head of the ManyElectronics Agency (dena) Stephan Kohler said the IEA report should be considered a wake-up call. “It confirms what dena has been saying regarding Germany for a long time: We are jeopardising the security of supply if we do not invest heavily in conventional power plants. There is the need for quick investment in Southern Germany as swift grid expansion is not to be expected. To attract investment, we need a more attractive (regulatory) framework, i.e. so-called capacity markets (in which conventional power plant operators are remunerated for providing secure capacity).”

5. IEA on Reaching Climate Stabilisation Goals

Regarding climate stabilisation goals IEA points out:

The investment path traced in the report falls well short of reaching climate stabilisation goals, as today’s policies and market signals are not strong enough to switch investment to low-carbon sources and energy efficiency at the necessary scale and speed: a breakthrough at the Paris UN climate conference in 2015 is vital to open up a different investment landscape. Some $53 trillion in cumulative investment in energy supply and in energy efficiency is required by 2035 to get the world onto a 2° C emissions path.”

6. Topics of the Report in Short

The report addresses the following topics:

  • The structure of ownership and models for financing investment in different parts of the energy sector
  • The continued importance of oil investment in the Middle East to meet demand, and the consequences of delay in such investment
  • The dynamics and costs of LNG investment and how this can shape the future of global gas supply
  • Where investment in the power sector might fall short of what is required, with important findings on the reliability of electricity supply in Europe and in India
  • The outlook for investment in low-carbon technologies, including renewables, and energy efficiency and the barriers to their realisation
  • How global investment and financing requirements change if governments take stronger action to address climate change

Source: IEA

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