Global energy investment dropped in 2017 and isn’t keeping pace with needs, IEA says

Energize Weekly, July 25, 2018

Global energy investment dropped 2 percent in 2017 to $1.8 trillion in 2017—a sign it is “failing to keep up with energy security and sustainability goals,” according to the International Energy Agency (IEA).

It was the third consecutive year of declines in global investment with the power sector accounting for most of the drop, as there were fewer additions of coal, hydro, and nuclear power plants, the IEA’s “World Energy Investment” report said. Power sector investments declined 6 percent.

Still, the power sector accounted for the majority of investment dollars—$750 billion—with about 40 percent of that going to transmission and distribution projects.

That 40 percent share is the highest level for grid investments in a decade, with China the largest single market, followed by the U.S., the IEA said.

Investment in photovoltaic (PV) solar capacity rose more than 8 percent to $144 billion, but overall investment in renewable energy sources was down 7 percent to $300 billion.

Even as financing for solar projects rose, the IEA noted that the unit costs for PV projects fell by 15 percent as a result of lower module prices and more work in lower-cost regions.

“The relationship between electricity demand and investment continues to evolve, with the power sector becoming more capital intensive,” the IEA report said. “Over the past decade, the ratio of global power sector investment to demand growth more than doubled on average with policies to encourage renewables and efforts to upgrade and expand grids, but also due to more energy efficiency dampening demand growth.”

One area that appeared immune to the investment cutbacks was energy efficiency initiatives, where $236 billion was invested in transportation, building, and industrial projects—a 3 percent increase.

There was $715 billion spent in the oil and gas sector. Upstream investment rose by 4 percent to $450 billion in 2017 and is projected to rise by 5 percent in 2018 to $472 billion, driven by the U.S. shale oil and gas development, which is expected to grow by 20 percent.

“The rollercoaster journey of oil prices in recent years has not fundamentally changed the way the oil and gas industry finances its operations,” the IEA said. “The industry generally is now on more solid financial footing, thanks to higher oil prices, continuing financial discipline and cost reductions. In the first quarter of 2018, majors achieved the highest level of free cash flow since the same period in 2012 and are starting to reduce leverage, which skyrocketed over 2014-17.”

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