Meeting the world’s growing energy needs will require more than $48 trillion of investments in the period to 2035, according to the International Energy Agency (IEA).
In a report released as part of its World Energy Outlook series, the agency found that today's $1.6 trillion annual investment in energy supply needs to increase to $2 trillion over the coming decades. Annual spending on energy efficiency, meanwhile, will need to rise from the current $130 billion to more than $550 billion by 2035.
“The reliability and sustainability of our future energy system depends on investment,” said IEA executive director Maria van der Hoeven in a statement. “But this won't materialise unless there are credible policy frameworks in place as well as stable access to long-term sources of finance.”
Annual investment in new fuel and electricity supply has more than doubled in real terms since 2000, the report said, with investment in renewables quadrupling over the same period. Together with biofuels and nuclear power, these now account for around 15 percent of annual investment flows – with about the same amount going to power transmission and distribution networks.
But the agency states that a large majority of today’s investment – well in excess of $1 billion – still goes towards fossil fuels.
The report found that, in the electricity sector, administrative signals or regulated rates of return have become the most important drivers for investment, with the share of investment in competitive parts of electricity markets falling from about one-third of the global total ten years ago to around 10 percent today.
“Policy makers face increasingly complex choices as they try to achieve progress towards energy security, competitiveness and environmental goals,” commented IEA chief economist Fatih Birol. “These goals won't be achieved without mobilising private investors and capital, but if governments change the rules of the game in unpredictable ways, it becomes very difficult for investors to play.”
Of the cumulative global investment bill to 2035 in the study’s main scenario, around $40 trillion is needed in energy supply and the remainder in energy efficiency. Of the latter, $23 trillion is for fossil fuel extraction, transport and oil refining; nearly $10 trillion is in power generation, mainly accounted for by low-carbon technologies (with renewables at $6 trillion and nuclear at $1 trillion). A further $7 trillion is deemed needed to upgrade transmission and distribution.