Global investment in the energy sector fell by 8 per cent in 2015, but robust investment continued in renewables, electricity networks and energy efficiency, the International Energy Agency’s (IEA) latest report has found.
According to the report, World Energy Investment 2016, energy investment worldwide amounted to $1.8tn last year, down from $2tn in 2014, due largely to a 25 per cent drop in oil and gas sector investment which the IEA said resulted from cost reductions triggered by lower oil prices.
Fatih Birol (pictured), the IEA's chief executive, said at the report's launch today that his agency had “not seen such a decline in the history of oil”, and that the trend could be set to continue into 2017. He said last year had been “the lowest in history” for new oil and gas sector projects, and that discoveries of new oil reserves had been the lowest in 60 years.
“Investments today in the energy sector face major challenges,” Birol said. “It’s not very often that you see global energy investments declining in total.
“Oil and gas is still a very important share,” he added, “and power plants are of course the second most important item as far as investment is concerned.”
Following the money
China topped the list of energy-investing countries, spending $315bn in 2015, with efforts in building low-carbon generation capacity and transmission infrastructure as well as implementing energy efficiency policies. Next came the US with investment of $280bn, Europe ($140bn), Russia ($85bn) and India ($65bn).
Renewables were the big winners in technology terms. Birol noted that renewables’ share of global funding is “growing very strongly – in fact, of the total invested amount of $1.8tn, 30 per cent was for renewables and energy efficiency. This is a major shift in global energy investment compared to the previous year.”
However, although the report found a “broad shift” in investment towards low-carbon energy sources, actual spending on renewables remained flat at $313bn, with $221bn going toward energy efficiency.
Birol also noted that renewables, led by wind, constitute around 70 per cent of all power investments today. “Even though investment in renewables in the last five years has been more or less flat,” he said, “generation from renewable [power sources] increased substantially more than 30 per cent, which means renewables are more and more economic and the returns more strong.”
He also pointed out that in 2015, renewables generated more power than the total amount that the world consumed. But challenges remain, chiefly around intermittency and grid integration. Investment in energy storage, which could accelerate renewables integration, has increased by a factor of 10 over the past five years, he said, but while this is “a big number” and the storage sector is “strong and promising”, he pointed out that it still makes up only 0.4 per cent of total energy sector investment.
Investment in gas-fired power generation capacity fell by 40 per cent in 2015, while investment in coal-fired capacity grew by 25 per cent, largely in Asia. In China, where the government is “pushing so strongly” for renewable energy, nuclear power and energy efficiency, Birol said the IEA expects that “a significant part” of the nation’s coal-fired power capacity may remain unused. In India and Indonesia, however, the agency expects coal power capacity to become a larger part of the generation mix.
In 2015 the IEA saw a record number of nuclear power capacity additions, amounting to a total of 10 GW, the highest number in 10 years and totalling more than $20bn in investment. Nuclear power was added largely in China, but also in Russia and Korea. The main challenges of high up-front costs and public concerns continue to affect the sector.
And decentralized energy also received a mention from Laszlo Varro, the IEA’s chief economist. “The active participation of consumers in investment is an important new phenomenon,” he said, with $50bn in investment for power production coming from consumers. “Rooftop solar, large non-energy companies like Facebook and Google investing in renewables – these companies are very, very unlikely to invest in an oilfield but will use renewables to supply their own operations.” Decentralized energy investment is “still a minority,” he said, but it “points toward a different, more diverse sort of financing.”