World energy investment to hit $40.2 trillion by 2035

The International Energy Administration (IEA) has said that the global investment in energy supply would reach $40.2 trillion between 2014 and 2035.

The IEA, which made this disclosure in its latest World Energy Investment Outlook, said that $1.6 trillion was invested in 2013 to provide consumers with energy, a figure that has more than doubled in real terms since 2000.

According to the report, over 80 per cent of upstream oil and gas investment offsets output declines at today’s fields: one-third of power generation investment is to replace plants that retire.

It added that increasing yearly efficiency spending from $130 billion today to $550 billion by 2035 will require new models & sources of financing, from banks & capital markets.

The report stated: “Alongside investment by the private sector, the objectives, corporate culture & financing of state-owned companies are critical to future energy investment flows.

With current market designs, competitive parts of markets require less than $1 trillion of cumulative investment to 2035 out of total power sector needs of $16.4 trillion.

Once the current rise in non-OPEC supply runs out of steam, a shortfall in Middle East investment would lead to volatile markets and prices $15 per barrel higher in 2025.

“Over $700 billion invested in LNG infrastructure helps to globalise gas markets, but the high cost of transporting gas dampens importers’ hopes for much cheaper gas. Efficiency spending is $6 trillion higher & the composition of supply investment changes”.

IEA noted that the role of governments in energy markets was on the rise, while private investors are wary of political and regulatory risks.

It added that energy investments are moving to areas with high up-front costs, complicating the task of securing finance.

“Without reform to power markets, the reliability of Europe’s electricity supply is under threat. Investment in gas rises almost everywhere, but meeting future growth in oil demand depends heavily on the Middle East.

Credible policy & pricing signals, plus new financing vehicles, are essential to re-direct capital flows towards a 2 °C target”, it added.

It disclosed that over the past decade, four-fifths of investment in European power generation went to renewables, 60 per cent just to wind and solar PV. IEA said: “Europe needs to invest $2.2 trillion (2nd largest after China) to 2035 to replace ageing infrastructure & meet decarbonisation goals.

Current overcapacity offers some breathing space, but 100 GW of new thermal plants is needed before 2025 to safeguard reliability..

This investment won’t happen with current market rules: wholesale power prices are 20 per cent (or 20$/MWh) below cost-recovery levels.

Higher wholesale prices could increase end-user bills, adding to the strain on households & on competitiveness of EU industry.