International investment must increase to meet rising energy demand, IEA argue

4 June 2014

LONDON: In order to meet the global energy need, the world must invest more than US$48 trillion by 2035, with a refocus on energy efficency and renewables, the International Energy Agency (IEA) has stated.

In a new report which critically examines the current dynamic and future prospects of the international energy system, the analysts argue that to cope with growing demand, annual investment will have to be increased from US $1.6 trillion to US$2 trillion.

While the current breakdown of energy investment is still heavily weighted towards fossil fuels, the renewable energy sector has witnessed considerable growth. Since 2000 investment in renewable energy has quadrupled and now, when combined with biofuel and nuclear power, accounts for 15% of annual investment flows.

In fact, European investment in renewables has been greater than investment in natural gas production in the United States, the authors attest.

The World Energy Investment Outlook - Special Report also drew attention to the increasing importance of energy efficiency. Energy efficiency must be prioritized, with the research indicating that by 2035 annual spending needs to reach US$550 billion.

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Image by IEA

The report’s authors note that political leaders are often faced with difficult decisions, however they emphasize that a lack of consistency can negatively impact private sector energy investment. Greater dialogue between state actors, financial sector and energy industry is encouraged.

“If governments change the rules of the game in unpredictable ways, it becomes very difficult for investors to play”, IEA Chief Economist Fatih Birol, observed.

IEA Executive Director Maria van der Hoeven expanded on this point, stating that investment “won’t materialize unless there are credible policy frameworks in place as well as stable access to long-term sources of finance. Neither of these conditions should be taken for granted”

The Executive Director also cautioned that there are significant risks from failing to take into account the environmental impact of the energy source when investing.

Today the clean energy sector is a US $250 billion facet of the world economy, and similarly clean energy investment offers considerable financial gain. A recent report from the Carbon Disclosure Project highlighted that over a 3 year period, the average return on investment from clean energy technology is over 30%.

Mark Kenber, CEO of The Climate Group, emphasized the importance of developing renewable energy: “The IEA rightly highlights that energy investment needs to rise significantly over the next couple of decades. There will be few who disagree with this. However, what is more important – and possibly more contentious is the composition of this investment.

“To supply those who still lack access to reliable energy, to ensure that we do exceed the available carbon budget and to create jobs and incomes in a prosperous low carbon future, there is only one option: to at least triple investment in energy efficiency and to speed up deployment of the full spectrum of renewables in conjunction with modern energy storage, smart grids and business models that focus on energy services rather than kilowatt hours alone.” 

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Image by IEA

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By Alana Ryan

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