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Financial choices and energy’s future

Hydrocarbon Engineering,


A new report from the World Energy Council has said that the decisions that investors make today in the energy sector are going to make or break the sustainability of global energy systems for years to come. The report has also found that as global energy systems are being placed under increasing strain and as governments limit their spending under tough economic conditions, the ability to invest the SU$ 48 trillion required over the next 20 years into energy could be put in jeopardy, threatening the ability of countries to supply sustainable, reliable and affordable energy to their populations.

The study, ‘World Energy Trilemma: time to get real, the myths and realities of financing energy systems,’ was conducted with the global management consulting firm Oliver Wyman. The report analyses what is needed to unlock the required energy investment and is based on extensive interviews with approximately 50 leaders from the international energy finance community.

Investments

Joan MacNaughton CB, Executive Chair, World Energy Trilemma work said, ‘unlike many commentators’ warnings, our report finds that capital is available in the private sector to the required scale, but the patterns of investment will need to change radically in terms of the type of energy source, technology, and infrastructure. Above all, investors and developers will have to invest way beyond their comfort zones, and they will need better help from governments, regulators, and international financial institutions than is currently envisaged.’

The report found that an estimated cumulative investment of US$ 40.2 trillion is required across the global energy infrastructure supply chain with an additional US$ 8 trillion in energy efficiency over the period from 2014 – 2035. The funding challenge however is made even more acute as new financial rules could further reduce private finance to be channelled into energy projects. At the same time however, as traditional long term bank debt becomes harder to secure, energy project developers are looking towards alternative finance options such as pension funds, insurers, green bonds, sovereign wealth funds, private investment funds, and asset managers which are seeking to increase their infrastructure assets. Other funding sources or instruments, such as with the maturation of financial markets in developing economies, may evolve in coming decades to further reduce investment blockage, the report also says.

Energy Trilemma

Francois Austin, Global Head of Energy Practice, Oliver Wyman said, ‘uncertainty around technological developments, energy politics changing regulations, and volatiles energy and commodity prices are all adding a significant risk premium to the cost of capital for energy investments. The huge energy needs around the world offer significant market opportunities if robust and equitable pathways are provided for the private sector. The recommendations to improve countries’ balance on the energy trilemma through necessary investments can be delivered with coordinated efforts by governments, investors and energy companies.’

The report has placed four countries on negative watch (Japan, Germany, Italy, UK), while other countries could improve in one or more trilemma dimensions. Of the 129 countries in the ranking, only three managed to achieve an ‘AAA’ score on their trilemma performance, with one of those being the UK which is showing a downward trend in energy security.

Finding a balance

MacNaughton also said, ‘even countries with strong incumbent energy infrastructure are having a hard time balancing their energy trilemma, while many others are still struggling to meet their population’s basic energy needs. The persistent gap and future barriers to energy funding will only exacerbate an already fragile global energy system. Clearly countries must act now to reverse this oncoming storm: there is no time for complacency.’

The report has found that the best performing nations tend to be developed countries with higher shares of energy coming from low to zero carbon sources supported by well established energy efficiency programmes. The top 10 countries are Switzerland, Sweden, Norway, UK, Denmark, Canada, Austria, Finland, France and New Zealand.

Mexico and the UAE were put on positive watch, while other countries such as Colombia and the Philippines are making strides to improve their energy sustainability on all dimensions of the trilemma. These countries’ positive outlook shows that improvements can be made with the correct policy framework in place.


Edited from press release by Claira Lloyd

Read the article online at: https://www.hydrocarbonengineering.com/special-reports/25112014/energy-investment-for-future/


 

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