THE ENERGY INDUSTRY TIMES - OCTOBER 2016 A slump in capital spending on energy, mainly due to lower costs Total energy investment worldwide in 2015 is estimated to have amounted to just over United States dollar (USD) 1.8 trillion,2 accounting for 2.4% of global gross domestic product (GDP) (Figure 1.1). Investment in real dollar terms was 8% lower than in 2014, mainly due to a sharp decline in capital spending in upstream oil and gas. Figure 1.1 • Global energy investment in 2015 Energy Industry Data 11 Coal Oil & Gas Upstream Downstream and infrastructure Electricity networks Energy efficiency Power generation Conventional generation Renewables generation Renewables transport and heat 32% 1% 4% 14% 23% 7% 16% 46% 14% 12% USD 1.8 trillion reached nearly USD 315 billion, 17% of the total. Over 90% of this investment went to power generation technologies, the rest going to solar thermal heating installations and biofuels for transport. Figure 1.2 • Global investment in energy supply over time 2 000 1 800 1 600 1 400 1 200 1 000 800 600 400 200 0 2000 2003 2006 2009 2012 2015 USD (2015) billion World Energy Investment 2016, © IEA/OECD, Figure 1.2 , page 23 Table 1.1 • Investment in fossil fuel and electricity supply by region 80% 70% 60% 50% 40% 30% 20% 10% 0% T&D networks Nuclear Renewables Fossil fuel power generation Oil, gas, coal (supply) Right axis: Oil, gas, coal in total investment (%) expenditure cuts and underestimate the growth of renewables spending on productive capacity (see Chapters 3 and 4). For example, in real dollar terms 2015 solar PV investment was lower than in 2011, but 60% more capacity was added. Furthermore, the investment totals that include major projects, such as liquefied natural gas (LNG) projects in Australia, Canadian oil sands, and coal- and gas-fired power plants in Europe, reflect spending committed to long lead time projects that were launched under market conditions that were much more optimistic with respect to the price outlook and investment returns than when those projects were finally completed. In those sectors, investment is likely to fall in the coming years in the absence of a marked change in market conditions or government policies, as ongoing projects are completed and few new ones are being developed. Figure 1.3 • Cost developments across the energy spectrum 120 100 80 60 40 20 0 2008 2009 2010 2011 2012 2013 2014 2015 2016 2008 = 100 22 Chapter 1. Energy investment trends Excluding energy efficiency, global investment in energy supply totalled over USD 1.6 trillion, down nearly 10% (Figure 1.2, Table 1.1). Oil, gas and coal supply remained the biggest recipient of supply-side investment, totalling USD 900 billion, though its share of total energy investment dropped to 55% from over 60% in 2014. In absolute terms, the largest declines took place in the North American upstream oil and gas sector. Investment in the power sector, including generation capacity, transmission and distribution (T&D) networks and storage, reached a record USD 680 billion in 2015, up 4% on 2014 and 80% higher than a decade prior. Electricity’s share of total energy supply investment rose to 42% in 2015, compared with less than 40% during the past five years. This trend partly reflects the rising role of electricity in total final energy consumption, but also underlying cost and activity changes in both power and fossil fuel supply. Renewable energy investment 2 Unless otherwise stated, economic and investment numbers cited in this report are presented in real USD (2015), converted at market exchange rates. © OECD/IEA, 2016 USD 2015 billion Chapter 1. Energy investment trends 23 World Energy Investment 2016, © IEA/OECD, Table 1.1 , page 25 Note: Investment is defined as overnight capital expenditures on new assets. See Introduction section. Renewables for transport and heat include biofuels for transport and solar thermal heating installations. Chapter 1. Energy investment t25 Oil and gas Coal Power generation Renewables transport and heat Electricity networks TOTAL Upstream Downstream and infrastructure Mining and infrastructure Coal, gas and oil Nuclear Renewables OECD 246 109 17 22 2 153 7 113 669 Americas 193 62 6 7 0 52 1 58 380 United States 136 46 4 5 0 39 1 49 281 Europe 46 19 3 11 0 64 6 39 187 Asia Oceania 7 28 8 4 2 36 0 15 102 Japan 0 4 1 1 0 30 0 7 43 Non-OECD 337 117 46 89 19 136 17 150 911 Europe/Eurasia 67 23 6 3 5 2 0 16 122 Russia 44 18 5 2 5 1 0 9 83 Non-OECD Asia 87 30 36 73 15 110 1 108 459 China 51 9 26 43 15 90 15 66 315 India 7 4 7 18 0 10 0 20 66 Southeast Asia 22 11 3 11 0 7 0 10 64 Middle East 73 44 0 5 0 2 0 8 132 Africa 49 8 2 5 0 4 1 7 77 Latin America 61 13 1 1 0 17 1 11 107 Brazil 33 5 0 0 0 10 1 6 55 World 583 249 68 111 21 288 25 262 1607 European Union 15 17 2 9 0 56 3 39 141 Chapter 1. Energy investment trends 25 © OECD/IEA, 2016 On the demand side, investments in improving energy efficiency reached USD 220 billion in 2015. At USD 118 billion, buildings efficiency occupied the largest share, driven mainly by regulations such as minimum performance standards. While total investments aimed at improving efficiency are equivalent to just 14% of total investment in energy supply, their impact is larger given that a significant proportion of supply-side investments simply replace obsolete or retired capacity, while efficiency gains are more durable. The pronounced drop in investments in energy supply in 2015 to their lowest level since 2010 was largely due to big declines in unit costs – especially for upstream oil and gas, renewables and some major demand-side technologies. Upstream oil and gas costs fell on average by 15%. Renewable cost reductions were also big in some cases, though varied greatly by technology; for example, onshore wind costs fell by 3%, while utility solar photovoltaic (PV) costs plunged by 19%. Cost deflation, which resulted from both technological advances and competitive pressures, continued into 2016 (Figure 1.3). The IEA estimates that cost deflation accounted for approximately two-thirds of the overall decline in upstream investment (See Chapter 3). In addition, in some cases, such as the Russian Federation (hereafter “Russia”) and Japan, investment was lower in 2015 dollar terms due to depreciation of the local currency; as a result, each dollar of investment generally yielded a greater amount of supply capacity, offsetting to some degree the impact of the overall decline in investment. As a result of cost deflation and the relative strength of the US dollar, the investment data in nominal terms for 2015 overestimate the impact of oil and gas upstream capital © OECD/IEA, 2016 Upstream oil and gas Onshore wind Grid-scale batteries Solar PV - utility scale LEDs g 24 Chapter 1. Energy investment trends Changes in relative costs will reshape markets and investment The causes of cost deflation vary according to the type of technology and sector. In some cases, the factors that have pushed down costs are likely to be permanent, such as technology improvements and economies of scale. This is the case for light-emitting diodes (LEDs) used for lighting, for grid-scale batteries and for solar PV, which have benefited from learning by doing. In other cases, notably upstream oil and gas, cost deflation has resulted partly from overcapacity and competitive pressures. As a result, if (or when) oil and gas investment picks up, upstream costs may increase somewhat as service companies and suppliers of material and equipment regain pricing power. In general, IEA medium-term analyses foresee lower costs in renewables, lighting and electricity storage and eventually modest cost increases in upstream oil and gas. © OECD/IEA, 2016 Global energy investment in 2015 Global investment in energy supply over time Cost developments across the energy spectrum Investment in fossil fuel and electricity supply by region This section is supported by ABB Source: World Energy Investment 2016 World Energy Investment 2016, © IEA/OECD, Figure 1.3 , page 24 World Energy Investment 2016, © IEA/OECD, Figure 1.1 , page 22 For more information, please contact: International Energy Agency 9, rue de la Fédération 75739 Paris Cedex 15 France. Email: bookshop@iea.org website: www.iea.org
Energy Industry Times October 2016
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