IEA

© OECD/IEA 2017

World Energy Investment 2018

Laszlo Varro, Chief Economist

July 2018

Electricity

generation and

supply

Oil and gas

supply Energy

efficiency Coal supply

Renewable

transport and

heat

750 716 236 79

20

Global energy investment, 2017 (billion USD)

Global energy investment was USD 1.8 trillion in 2017, led by electricity

For the 3rd consecutive year energy investment declined in 2017 , by 2%, due to less power generation

investment, lower costs and continued prudence in the oil and gas sector. Energy efficiency was a lone

growth area.

-6% +2% +3% -13% -13%

© OECD/IEA 2017

The share of private-led energy investment has declined

The share of private ownership in energy investment, 2012-17

Despite a growing role for clean energy and electricity infrastructure led by private actors, the share of

energy investment from NOCs and state-owned thermal power rose by more over the past five years.

20%

30%

40%

50%

60%

70%

2012 Renewables &energy efficiency

Electricity networks &storage

Oil & gas Thermal generation 2017

© OECD/IEA 2017

What balance between competitive and regulated power markets?

Global power sector investment by main remuneration model

Over 95% of power sector investments rely on regulation or contracts beyond short-term wholesale

markets for their main remuneration, as regulators pursue adequacy and environmental aims.

2017: USD 750 billion

Wholesale market pricing

Regulated networks

Distributed generation

Regulated/contracted

utility-scale generation

Tenders have facilitated economies of scale for renewables

Average size of awarded projects in solar PV auctions in emerging economies

In emerging economies, the average size of awarded solar PV projects has grown more than

quadrupled since 2013 while that of onshore wind rose by half over 2013-17.

0

30

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120

150

0

20

40

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2013 2015 2017

MW

Average size Average awarded price

USD/MWh

Wind and solar only compensates for the slowdown of nuclear and hydro

In the past decade, output from new solar & wind grew 45% faster than investment. Yet, the generation

impact of new clean power has declined the past 2 years due to slowing spending on nuclear and hydro.

0.0%

0.2%

0.4%

0.6%

0.8%

1.0%

1.2%

1.4%

1.6%

1.8%

2.0%

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

nuclear hydro wind solar

Expected generation from new construction starts as a percentage of global power demand

Investment in lifetime extensions for nuclear plants have risen

Global investment in lifetime extensions for nuclear vs solar PV + wind (2013-2017)

In 2017, half of nuclear investment was from spending on long-term operation for existing plants.

Lifetime extensions can be a cost-effective transitional measure for maintaining low-carbon generation.

0

200

400

600

800

1 000

1 200

Nuclear lifetime extension Solar PV + Wind

USD (2017) billion Investment

0

5 000

10 000

15 000

20 000

25 000

Nuclear lifetime extension Solar PV + Wind

TWh Expected new generation over lifetime

10-20 year extension

© OECD/IEA 2017

Thermal power FIDs continued to decline

Thermal generation capacity subject to a FID by plant type

In 2017 newly sanctioned coal power fell 18% to a level one-third that of 2010, driven by a slowdown in

China, India & SE Asia. Sanctioned gas power fell nearly 23%, due to the MENA region & the US.

0

20

40

60

80

100

120

2010 2011 2012 2013 2014 2015 2016 2017

GW

China India Southeast Asia Rest of world

Coal-fired generation

0

20

40

60

80

100

120

2010 2011 2012 2013 2014 2015 2016 2017

GW

MENA US China Southeast Asia Rest of world

Gas-fired generation

© OECD/IEA 2017

The capital intensity of electricity is increasing

0

100

200

300

400

500

600

700

800

0

200

400

600

800

1000

1200

2002 2007 2012 2017 2030 SDS

TWh USD (2017) billion

Networks Nuclear Renewables Coal, oil, gas Average demand growth (next five years)

© OECD/IEA 2017

Utility business models are shifting

Aggregate earnings of the top 20 European utilities by business segment

European utility earnings fell by one-third in the past five years. Three quarters of earnings now stem

from grids and generation with contracted/regulated pricing as business grows more capital intensive.

0.0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0

20

40

60

80

100

120

140

160

2012 2013 2014 2015 2016 2017

USD billion

Regulated & contracted Merchant generation Other Capex/EBITDA (right axis)

© OECD/IEA 2018

0

10

20

30

40

2011 2012 2013 2014 2015 2016 2017

kb/d

Cars Buses

Electric vehicles still only slow down the growth of oil demand

The electric cars and buses sold in 2017 will permanently reduce oil demand by around 30kb/d, with a

major contribution from buses in China; but oil demand is rising at fifty times this amount.

Oil displaced by new EV sales worldwide

0

500

1 000

1 500

2 000

2011 2012 2013 2014 2015 2016 2017

kb/d

Global oil demand growth

© OECD/IEA 2017

Lower upstream spending could lead to tighter markets

Outside US shale, upstream investment continue to recovery very modestly with companies able to

keep costs under control.

Global oil and gas upstream capital spending 2012-2018

© OECD/IEA 2017

Changing dynamics in the oil and gas industry

The shift of investment towards short cycle projects and assets with high production decline rates

suggests more volatility ahead in the markets.

Share of global upstream oil and gas investment by asset type

0%

10%

20%

30%

40%

50%

2000-2010 2015 2016 2017 2018E

Onshore conventional

Offshore conventional

Shale/tight oil

© OECD/IEA 2017

The US LTO journey towards a financially sustainable business

IEA estimates that US LTO sector is on track in 2018 to generate positive free cash flow for the first time

ever, but downside risks remain.

US LTO production, capital investment and free cash flow

© OECD/IEA 2017

Investment in new LNG plants keeps falling

Given buyers’ reluctance for new long-term contracts, companies adopt a wait-and-see approach,

although some signs of renewed interest for new LNG plants emerges.

0

100

200

300

400

500

600

700

0

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10

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25

30

35

40 2

00

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07

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20

20

20

21

20

22

USD (2017) billion Australia

Africa

Middle East

North America

Russia

Europe

Others

Capacity (right axis)

bcm per year

World LNG liquefaction investment by country/region

© OECD/IEA 2017

Clean energy R&D investment is finally on the rise…

Public spending on R&D for low-carbon technologies rose 13% to USD 22 billion in 2017 after several

years of stagnation; however, this is just 0.1% of public spending in major countries.

0

5

10

15

20

25

2012 2013 2014 2015 2016 2017E

North America Europe Asia and Oceania Rest of World

Total public spending on clean energy technology RD&D (in billion USD)

© OECD/IEA 2017

A record year for corporate investment in new energy tech firms

Corporate investing in innovative energy start-ups is made a return in 2017, but energy company

spending is dwarfed by IT company investments, which drove the total to USD 6.1 billion.

Global deals by corporate investments in energy technology companies (excl. buy-outs)

0

1

2

3

4

5

6

7

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

USD (2017) billion

Oil and gas Utilities Transport ICT Other energy Other

Cost for CO2 capture and storage or utilisation in industry

CCUS is vital to tackling climate change, but sustainable deployment needs investment in “low-hanging fruit” today; 450

million tonnes of CO2 per year (equal to all emissions growth in 2017) can be captured and stored for USD 40/tonne.

Investment in carbon capture, utilisation & storage needs policy

0

50

100

150

200

Under $10 $10 - 20 $20 - 30 $30 - 40

Million tonnes of CO2