© OECD/IEA 2014

Laura Cozzi Directorate of Global Energy Economics

CCXG, Paris, 17 June 2014

© OECD/IEA 2014

The context

Today’s investments lock in patterns of consumption, fuel use & emissions for long into the future

Capital costs to produce energy have doubled since 2000

Investment surge to meet rising Asian demand, but shale in US & renewables in Europe also show dynamic growth…

…that are attracting new type of investors

Growing public pressure on energy & environmental issues

© OECD/IEA 2014

Renewables come of age, but fossil fuel investment still dominant

Annual energy supply investment

Investment in renewables rose from $60 billion in 2000 to a high point approaching $300 billion in 2011, before falling back since

500

1 000

1 500

Billi

on d

olla

rs (2

012)

2000 2005 2010 2011 2012 2013

Renewables

Power transmission & distribution

Fossil fuels

Nuclear

© OECD/IEA 2014

10 20 30 40 50 60 Trillion dollars (2012)

A new investment landscape for a 2 °C world

Investment in the New Policies and 450 Scenarios, 2014-2035

Efficiency spending is $6 trillion higher & the composition of supply investment changes: CCS is widely deployed, $300 billion of fossil fuel investment is left stranded

450 Scenario

New Policies Scenario

Fossil fuels Power T&D Low-carbon Energy Efficiency

© OECD/IEA 2014

2

4

6

8

10

12

1990 2010 2030

Thos

uand

TW

h

Fossil-fuel plants fitted with CCS Fossil-fuel plants without CCS

OECD

1990 2010 2030

Other non-OECD

1990 2010 2030 Renewables Nuclear

China

The power sector is central to a low-carbon world

Electricity generation by technology and CO2 intensity in the 450 Scenario

Investment in low-carbon power technologies needs to triple from around $250 billion today to $730 billion in 2035, three-quarters for renewables

0.2

0.4

0.6

0.8

1.0

1.2

gCO

2/kW

h

CO2 electricity emission intensity (right axis)

© OECD/IEA 2014

30

60

90

120

150

180

210

2008 2013 2020 2025 2030 2035

Billi

on d

olla

rs (2

012)

$1 425 billion

$565 billion

$1 990 billion

Attracting financing in the 450 Scenario

Subsidies to renewables in the 450 Scenario

New financing vehicles could help lower the cost of capital – a reduction of three pct points would make renewables more competitive, reducing subsidies by 40%

Additional payment without WACC reduction

Up to 2035

Up to 2015

$1 540 billion

with reduced WACC

$800 billion

$1 190 billion

© OECD/IEA 2014

Committing capital in a fast-changing energy world

The role of governments in energy markets is on the rise, while private investors are wary of political and regulatory risks

Energy investments are moving to areas with high up-front costs, complicating the task of securing finance

The overall investment need in the energy sector is not much larger in a scenario compatible with a 2 °C target, but low-carbon have to significantly scale up

Credible policy & pricing signals, plus new financing vehicles, are essential to re-direct capital flows towards a 2 °C target

Report and data are free for download at: www.worldenergyoutlook.org