© OECD/IEA 2016 © OECD/IEA 2016

Simon Bennett IEA Economics and Investment Office

10 November 2016

© OECD/IEA 2016

The context

Investment is the lifeblood of the energy system, which determines long-term trends of supply, emissions and fuel demand

Investors face new challenges and opportunities from recent trends

Macroeconomic uncertainty and structural change affects demand patterns

The energy sector faces accelerated technological change

Lower energy prices and increasing inter-fuel competition reshape investment

New business models and investors are transforming the electricity sector

Global energy investment declined in 2015, mainly due to lower oil and gas spending

Share of renewables in investment boosted by technology progress, strong policy support and growth in good resource markets

© OECD/IEA 2016

Power Generation

23% Biofuels and Solar

Heat 1%

USD 1.8 trillion

Investment flows signal a reorientation of the global energy system

An 8% reduction in 2015 global energy investment results from a $200 billion decline in fossil fuels, while the share of renewables, networks and efficiency expands

Oil & Gas 46%

Coal 4%

Electricity Networks

14%

Energy Efficiency

12%

Global Energy Investment, 2015

© OECD/IEA 2016

Power Generation

23% Biofuels and Solar

Heat 1%

Renewables 17%

USD 1.8 trillion

Investment flows signal a reorientation of the global energy system

An 8% reduction in 2015 global energy investment results from a $200 billion decline in fossil fuels, while the share of renewables, networks and efficiency expands

Oil & Gas 46%

Coal 4%

Electricity Networks

14%

Energy Efficiency

12%

Global Energy Investment, 2015

Thermal Power

7%

© OECD/IEA 2016

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Unprecedented wave of investment cuts in the upstream oil and gas industry

Global upstream capital spending 2010-2017

Cost deflation, efficiency improvements and reduced activity levels might lead for the first time to three consecutive years of investment decline

-24%

-25%

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High efficiency

Infrastructure investment cost for a 1 GW power plant in Asia Coal and gas-fired power investment in Asian markets (2015)

Infrastructure costs favour coal power over gas in Asian energy importers

Asian markets comprised 85% of global coal power investment, while N. America and Middle East, with robust infrastructure, favoured gas for new fossil fuel power

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High efficiency

Infrastructure investment cost for a 1 GW power plant in Asia Coal and gas-fired power investment in Asian markets (2015)

Infrastructure costs favour coal power over gas in Asian energy importers

Asian markets comprised 85% of global coal power investment, while N. America and Middle East, with robust infrastructure, favoured gas for new fossil fuel power

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Renewables investment buys much more electricity

Investment in renewables will generate annually more than 2015 global electricity growth. Wind leads, surging 35% in 2015 on economics and record offshore growth

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USD (2015) billion

Hydropower Solar PV Wind Other renewables

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2011 2013 2015

TWh +33%

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Global renewable power investment Expected generation from investment

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In electricity networks, batteries accelerate though grids comprise most investment growth

Global grid-scale battery storage investment Total networks investment

x10

0.4%

Grid-scale battery storage spending has expanded tenfold since 2010. Their value lies most in complementing grids that constitute the bulk of investment

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Global nuclear investment remains robust due to China

Economics and public concerns remain a challenge to significant nuclear expansion

Nuclear construction starts, 2000-2015

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Rest of world China

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Governments increasingly in the driving seat of electricity security

Global power generation investment by main business model

95% of generation investments rely on contracts or price regulation, with a narrower role for wholesale pricing, as regulators pursue adequacy and low carbon aims

Utility-scale renewables

(fixed or variable pricing)

Wholesale pricing

Distributed generation

Fossil fuel regulated (fixed pricing or VIU)

Nuclear (fixed pricing)

2010: USD 370 billion

Utility-scale renewables (fixed or variable pricing)

Wholesale pricing

Distributed generation

Fossil fuel regulated (fixed pricing or VIU)

Nuclear (fixed

pricing)

2015: USD 425 billion

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New business models expanding the sources of investment for clean energy

Contracting of utility-scale renewables by non-energy companies in North America

Consumer-led spending – e.g. distributed solar PV and corporate buying – comprised over USD 50 billion of renewable investment, led by United States, Europe and Japan

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GW

Philips Corning

Salesforce Bloomberg

Owens Corning Equinix

HPE Switch

Cisco Amazon

Dow Chemical Kaiser Permanente

General Motors Procter & Gamble

Yahoo Mars

IKEA Facebook

BD Microsoft

Apple Google

Walmart

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Carbon intensity of new power capacity down 20% since 2010

At 420kg CO2/MWh, generation investments slowly reduce emissions intensity of existing power fleet (530kg/MWh), but remain well above 100kg/MWh to meet 2DS

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2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

kgC

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Global average CO2 emissions per MWh from new power generation capacity

© OECD/IEA 2016

Conclusions

Global energy investment in 2015 is 8% lower. The share of oil & gas declined, while that of renewables, efficiency and nuclear rose

Massive cost deflation across the entire energy spectrum is reshaping competition between fuels and technologies

Unprecedented cuts in upstream investment are shifting the geography of oil production

Renewables investment accounts for more than two-thirds of power generation and more than covers global electricity demand growth

New business models are transforming electricity, but policies drive most investment; governments play a key role in supply security

The IEA will continue to measure investment flows and assess their implications for the global energy sector