Fossil Fuels Power Global Energy Investment Stabilisation in 2018

Growing spending on fossil fuels helped global energy investment stabilise in 2018, ending three consecutive years of decline, according to the International Energy Agency’s (IEA) 2019 annual review released May 14.

Investment totalled more than $1.8tn last year, a level similar to 2017. Capital spending on oil, gas and coal supply bounced back last year, the report notes, but investment stalled for energy efficiency and renewables.

“The findings signal a growing mismatch between current trends and the paths to meeting the Paris Agreement and other sustainable development goals,” the IEA warned.

The biggest jump came in the United States, where investment was boosted by higher spending in upstream supply, particularly shale. The increase narrowed the gap between the United States and China, which remained the world’s largest investment destination.

Still, even as investments stabilised, approvals for new conventional oil and gas projects fell short of what would be needed to meet continued robust growth in global energy demand, the report said. For the third year in a row the power sector attracted more investment than the oil and gas industry.

At the same time, there are few signs of the substantial reallocation of capital towards energy efficiency and cleaner supply sources that is needed to bring investments in line with the Paris Agreement and other sustainable development goals.

“Energy investments now face unprecedented uncertainties, with shifts in markets, policies and technologies,” said , the IEA executive director Dr Fatih Birol. “But the bottom line is that the world is not investing enough in traditional elements of supply to maintain today’s consumption patterns, nor is it investing enough in cleaner energy technologies to change course. Whichever way you look, we are storing up risks for the future.”

The world is witnessing a shift in investments towards energy supply projects that have shorter lead times. In power generation and the upstream oil and gas sector, the industry is bringing capacity to market more than 20% faster than at the beginning of the decade. This reflects industry and investors seeking to better manage risks in a changing energy system, and also improved project management and lower costs for shorter-cycle assets such as solar PV, onshore wind and US shale.

Even though decisions to invest in coal-fired power plants declined to their lowest level this century and retirements rose, the global coal power fleet continued to expand, particularly in developing Asian countries.

The continuing investments in coal plants, which have a long lifecycle, appear to be aimed at filling a growing gap between soaring demand for power and a levelling off of expected generation from low-carbon investments (renewables and nuclear). Without carbon capture technology or incentives for earlier retirements, coal power and the high CO2 emissions it produces would remain part of the global energy system for many years to come. At the same time, to meet sustainability goals, investment in energy efficiency would need to accelerate while spending on renewable power doubles by 2030.

Among major countries and regions, India had the second largest jump in energy investment in 2018 after the United States. However, the poorest regions of the world, such as sub-Saharan Africa, face persistent financing risks. They only received around 15% of investment in 2018 even though they account for 40% of the global population. Far more capital needs to flow to the least developed countries in order to meet sustainable development goals.

The report also found that public spending on energy research, development and demonstration (RD&D) is far short of what is needed. While public energy RD&D spending rose modestly in 2018, led by the United States and China, its share of gross domestic product remained flat and most countries are not spending more of their economic output on energy research.

“Current investment trends show the need for bolder decisions required to make the energy system more sustainable,” Dr Birol said. “Government leadership is critical to reduce risks for investors in the emerging sectors that urgently need more capital to get the world on the right track.”