This document discusses investment trends in the global energy sector and the changes needed to meet climate targets. It finds that while renewables investment has increased, fossil fuels still dominate. Transitioning to a 2 degree Celsius pathway would require tripling low-carbon power investment to $730 billion annually by 2035, mostly in renewables. It also notes that reducing the cost of capital for renewables could lower required subsidies by 40%. Overall investment needs are similar, but policies are needed to redirect capital flows towards low-carbon technologies and meet climate goals.

1. © OECD/IEA 2014
Laura Cozzi Directorate of Global Energy Economics CCXG, Paris, 17 June 2014

2. © OECD/IEA 2014
The context
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Today’s investments lock in patterns of consumption, fuel use & emissions for long into the future

Capital costs to produce energy have doubled since 2000

Investment surge to meet rising Asian demand, but shale in US & renewables in Europe also show dynamic growth…

…that are attracting new type of investors

Growing public pressure on energy & environmental issues

3. © OECD/IEA 2014
Renewables come of age, but fossil fuel investment still dominant
Annual energy supply investment
Investment in renewables rose from $60 billion in 2000 to a high point approaching $300 billion in 2011, before falling back since
500
1 000
1 500
Billion dollars (2012)
2000
2005
2010
2011
2012
2013
Renewables
Power transmission & distribution
Fossil fuels
Nuclear

4. © OECD/IEA 2014
10
20
30
40
50
60
Trillion dollars (2012)
A new investment landscape for a 2 °C world
Investment in the New Policies and 450 Scenarios, 2014-2035
Efficiency spending is $6 trillion higher & the composition of supply investment changes: CCS is widely deployed, $300 billion of fossil fuel investment is left stranded
450 Scenario
New Policies Scenario
Fossil fuels
Power T&D
Low-carbon
Energy Efficiency

5. © OECD/IEA 2014
2
4
6
8
10
12
1990
2010
2030
Thosuand TWh
Fossil-fuel plants fitted with CCS
Fossil-fuel plants without CCS
OECD
1990
2010
2030
Other non-OECD
1990
2010
2030
Renewables
Nuclear
China
The power sector is central to a low-carbon world
Electricity generation by technology and CO2 intensity in the 450 Scenario
Investment in low-carbon power technologies needs to triple from around
$250 billion today to $730 billion in 2035, three-quarters for renewables
0.2
0.4
0.6
0.8
1.0
1.2
gCO2/kWh
CO2 electricity emission
intensity (right axis)

6. © OECD/IEA 2014
30
60
90
120
150
180
210
2008
2013
2020
2025
2030
2035
Billion dollars (2012)
$1 425 billion
$565 billion
$1 990 billion
Attracting financing in the 450 Scenario
Subsidies to renewables in the 450 Scenario
New financing vehicles could help lower the cost of capital – a reduction of three
pct points would make renewables more competitive, reducing subsidies by 40%
Additional payment without
WACC reduction
Up to 2035
Up to 2015
$1 540 billion
with reduced WACC
$800 billion
$1 190 billion

7. © OECD/IEA 2014
Committing capital in a fast-changing energy world
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The role of governments in energy markets is on the rise, while private investors are wary of political and regulatory risks

Energy investments are moving to areas with high up-front costs, complicating the task of securing finance

The overall investment need in the energy sector is not much larger in a scenario compatible with a 2 °C target, but low-carbon have to significantly scale up

Credible policy & pricing signals, plus new financing vehicles, are essential to re-direct capital flows towards a 2 °C target
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Report and data are free for download at: www.worldenergyoutlook.org