© OECD/IEA 2016 © OECD/IEA 2016

Tomi Motoi, International Energy Agency

Vienna, 21 October 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

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%

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

USD (2015) billion

0 50 100 150 200 250 300 350

India

Russia

European Union

United States

China

Energy supply investment in 2015, selected markets

Top five markets comprised over half of global energy supply investment

Boosted by record power sector spending, China regains its position as top investment market, while the US declines due to sharply lower oil and gas investment

© OECD/IEA 2016

Energy efficiency investment rose 6%, with buildings the largest and fastest-growing share

More efficient bulbs keep cost of lighting in check, even with rising electricity prices,

and contribute to stagnation of demand growth in a number of OECD countries

Lighting efficiency and cost, and electricity prices in selected countries

40

60

80

100

120

140

160

2005 2009 2013

20

05

= 1

00

Japan

USD (2015) per lumen-hour kWh per lumen-hour USD (2015) per kWh

40

60

80

100

120

140

160

2005 2009 2013

Germany

40

60

80

100

120

140

160

2005 2009 2013

United States

© OECD/IEA 2016

0

100

200

300

400

500

600

700

800

900 2

01

0

20

11

20

12

20

13

20

14

20

15

20

16

20

17

USD

(2

01

5)

bill

ion

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%

© OECD/IEA 2016

The share of NOCs in global upstream investment reaches an all time high

Share of upstream oil and gas investment, by company type

Upstream investment remains robust in the Middle East and Russia while North American shale and global offshore spending have been hit most severely

10% 16% 8%

27% 21% 24%

27% 27% 24%

36% 36% 44%

0%

20%

40%

60%

80%

100%

2007 2014 2016

Majors US Independents NOCs Other private

© OECD/IEA 2016

Renewables investment buys much more electricity

Investment in renewables-based capacity more than covers 2015 global electricity growth. Wind leads, surging 35% in 2015 on economics and record offshore growth

0

50

100

150

200

250

300

350

2011 2013 2015

USD (2015) billion

Hydropower Solar PV Wind Other renewables

0

50

100

150

200

250

300

350

400

2011 2013 2015

TWh +33%

+0%

Global renewable power investment Generation from investment in capacity

© OECD/IEA 2016

A diverse regional investment picture for renewables

Renewables investment by country/region

0

25

50

75

100

125

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

20

13

20

14

20

15

USD

(2

01

5)

bill

ion

China European Union United States Japan India Rest of OECD Rest of non-OECD

© OECD/IEA 2016

0,0

0,2

0,4

0,6

0,8

1,0

1,2

2010 2011 2012 2013 2014 2015

USD

(2

01

5)

bill

ion

0

50

100

150

200

250

300

2015

USD

(2

01

5)

bill

ion

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

© OECD/IEA 2016

0

200

400

600

800

1 000

1 200

Gas Coal

20

15

(U

SD)

mill

ion

0

10

20

30

40

50

60

70

Gas Coal

20

15

(U

SD)

bill

ion

Subcritical

High efficiency

0

10

20

30

40

50

60

70

Gas Coal

20

15

(U

SD)

bill

ion

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

© OECD/IEA 2016

Global nuclear investment remains robust due to China

Economics and public concerns remain a challenge to significant nuclear expansion

Nuclear construction starts, 2000-2015

0

2

4

6

8

10

12

14

16

18

20 2

00

0

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

20

13

20

14

20

15

GW

Rest of world China

© OECD/IEA 2016 © OECD/IEA 2016

© 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

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

© OECD/IEA 2016 © OECD/IEA 2016

www.iea.org/investment

© OECD/IEA 2016

Where will the money come from for power sector investments?

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