Global energy investment declines 12% in 2016 as power sector leapfrogs oil and gas

Global energy investment fell by 12 percent to $1.7 trillion in 2016, representing 2.2 percent of the world gross domestic product (GDP) and second consecutive year of decline, according to the July 2017 International Energy Agency (IEA) Annual World Energy Investment report.

The IEA stated that the electricity sub-sector of the energy market edged ahead the oil and gas sub-sector to become the largest recipient of energy investment, adding that spending on the electricity sector around the world exceeded the combined spending on oil, gas and coal supply for the first time.

Specifically, the share of clean-energy spending reached 43 percent of total supply investment, a record high.

However, oil and gas still represent two-fifths of global energy supply investment, despite a fall of 38 percent in capital spending in that sector between 2014 and 2016. As a result, the share of low-carbon supply-side energy investments, including electricity networks, grew by six percentage points to 43 percent over the same period.

The IEA noted that spending in energy efficiency rose by nine percent, just as electricity networks rose by six percent. But the increases were more than offset by a continuing drop in investment in upstream oil and gas, which fell by over a quarter as well as power generation dropping five percent.

Falling unit-capital costs, especially in upstream oil and gas and solar photovoltaics (PV), was a key reason for lower investment, though reduced drilling and less fossil fuel-based power capacity also contributed.

“Global electricity investment edged down by just under one percent to $718 billion, with an increase in spending on networks partially offsetting a drop in power generation, the report stated, adding that investment in new renewables-based power capacity, at $297 billion, remained the largest area of electricity spending, despite falling back by three percent.

“Renewables investment was three percent lower than five years ago, but capacity additions were 50 percent higher and expected output from this capacity about 35 per cent higher, thanks to declines in unit costs and technology improvements in solar PV and wind,” the report further stated.

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China, the largest destination of energy investment, with about 21 percent of the global investments was reported to have seen a 25 percent decline in commissioning of new coal-fired power plants, as the country is increasingly driven by low-carbon electricity supply and networks, and energy efficiency.

The United States also saw a sharp decline in oil and gas investment and accounted for 16% of global spending. India was the fastest-growing major energy investment market, with spending up seven percent owing to a strong government push to modernize and expand the power sector.

“Our analysis shows that smart investment decisions are more critical than ever for maintaining energy security and meeting environmental goals,” said Fatih Birol, the IEA’s Executive Director, adding that as the oil and gas industry refocuses on shorter-cycle projects, the need for policymakers to keep an eye on the long-term adequacy of supply is more important.

“Even with ambitious climate-mitigation goals, current investment activity in oil and gas will have to rise from its current slump,” he
stressed, adding: “The good news is that in spite of low energy prices, energy efficiency spending is rising thanks to strong government policies in key markets.”

However, the report projected that despite a 44 percent plunge between 2014 and 2016, the upstream oil and gas investment will be rebound modestly in 2017.

“A 53 percent upswing in US shale investment and resilient spending in large producing regions like the Middle East and Russia looks to drive upstream investment to bounce back by three percent in 2017 (a six per cent increase in nominal terms), the report said, adding that spending is also rising in Mexico following a very successful offshore bid round in 2017.

The IEA report also noted that while carbon emissions stagnated in 2016 for the third year, investment in clean electricity generation was not keeping pace with demand growth.