Grid spending up, but other energy investments down — IEA

Source: Nathanial Gronewold, E&E News reporter • Posted: Wednesday, July 18, 2018

Spending on electricity and electric grids is dominating global energy investments, a new report finds.

The International Energy Agency’s latest World Energy Investment report also finds that investments in renewable energy generation declined in 2017 compared to prior years, while spending on extracting more oil and natural gas rose modestly. Energy efficiency investing also declined somewhat last year, as the world experienced something of a road bump on the path toward a lower greenhouse gas emitting energy sector.

The report was released this morning from IEA’s office in Paris.

IEA analyst Michael Waldron said overall spending on energy dropped during 2017. Where it did occur, the power grid was the main target, and investments were dominated by state-owned enterprises and driven primarily by government policies. Analysts there found that 95 percent of energy investments were driven either by government fiat or by government payments and other incentive systems.

“What we found is that for the third consecutive year, energy investment declined,” Waldron said. “It declined by 2 percent in 2017. This is actually a smaller decline in previous years, where we’ve seen a dramatic fall-off in oil and gas spending, partly related to the decline in oil and gas prices but also due to falling costs.”

With the rise in oil prices comes an increase in investments on new upstream oil and gas projects, but only by a modest degree, said IEA senior program officer Alessandro Blasi.

“Despite the strong rise in oil prices, global upstream costs remain substantially flat over the last two years,” he said. “We estimate costs to increase very modestly, by 3 percent in 2018. This is because companies have learned to do more with less.”

Blasi said onshore shale oil projects in the United States remain the prime target of new upstream oil and gas spending, but this isn’t necessarily good news. He said IEA energy market observers are increasingly worried about the prospect for greater volatility in the global oil market as investment continues to de-emphasize long-lead, massive capital-intensive conventional upstream projects in favor of more short-term shale projects, which net investors quicker returns but suffer from steeper, faster production declines.

Nevertheless, the report points to an ongoing trend toward greater electrification.

Though renewable energy investment fell last year, the drop was dominated by changes in China in state support for solar power. Investment trends continue to disadvantage coal. And oil and gas’s share of new worldwide energy investment was lower than spending on global electricity infrastructure for two years in a row.

“For us, this is a significant finding, because traditionally, the oil and gas sector has dominated the energy sector in terms of investment, and the fact that electricity is now outpacing oil and gas is a good indication that there’s a larger trend occurring in terms of the electrification of the energy system, which we see as a long-term trend tied to energy transition,” Waldron said.

But the drop in renewable energy investment should be concerning from a climate perspective, he added. “There’s been a pause in the shift toward clean energy, cleaner energy supplies investment,” he said.

Research findings show a 3 percent decline in combined energy efficiency and renewable energy investment last year, with new renewable power investments falling by 7 percent in 2017, “and there is a risk that it will slow further this year,” the report warns.