© OECD/IEA 2015 © OECD/IEA 2015

Fostering Long-Term Investment in Energy

Dr. Paolo Frankl

Head of Renewable Energy Division

International Energy Agency

B20 Energy Forum, 2 October 2015

© OECD/IEA 2015

Oil price drop and short-term investment climate

Global upstream oil and gas investment

Announced capex cuts for 2015 are highest (at up to 40%) in North America & Brazil; for tight oil, a decision to stop drilling feeds through quickly into production levels

250

500

750

Bill

ion

do

llars

2012 2013 2014 2015 (est.)

20%

© OECD/IEA 2015

Long-term investment needs

Cumulative global energy supply investment by fuel and type, 2014 – 2040 ($billion)

Larger share of the investment is required to offset declining production from existing oil and gas fields and to replace power plants

2 281

6 405

3 240

1 541

7 377

14 385

1 167

1 757

1 027 368

8 034

2 448 793

437

Biofuels

Total: 51 259

Renewables

Power

Nuclear

Transmission Distribution Fossil-fuel plants

Upstream Transmission and distribution LNG

Gas

Mining Transportation infrastructure

Coal

Upstream Transport Refining

Oil

20 843

17 308

1 395

11 275

© OECD/IEA 2015

A mix moving towards natural gas & low-carbon energy

Fuel shares in world primary energy demand

Declining shares of oil & coal in the mix bring the overall share of fossil fuels down to just under three-quarters by 2040, with gas on the way to

becoming first fuel – Renewable Energy grows the fastest!

29%

31%

21%

5%

14%

2012

Coal

Oil

Gas

Nuclear

Renewables

13 361 Mtoe

24%

26% 24%

7%

19%

2040 18 290 Mtoe

© OECD/IEA 2015

The global power mix continues to evolve

World electricity generation by source

Renewables overtake coal as the largest source of power generation by around 2035; natural gas also sees an increase in market share

3 000

6 000

9 000

12 000

15 000

1990 2000 2010 2020 2030 2040

TWh historical projected

Renewables Coal

Gas

Nuclear

Oil

© OECD/IEA 2015

IEA strategy to raise climate ambition Peaking emissions (Bridge Scenario)

Global energy-related GHG emissions

20

25

30

35

40

2000 2014 2020 2025 2030

Gt

CO

2-e

q

Bridge Scenario

INDC Scenario

Energy efficiency

49%

Reducing inefficient coal

Renewables investment

Upstream methane reductions

Fossil-fuel subsidy reform

17%

15%

10%

Savings by measure, 2030

9%

Five measures – shown in a “Bridge Scenario” – achieve a peak in emissions around 2020, using only proven technologies & without harming economic growth

© OECD/IEA 2015

IEA strategy to raise climate ambition Staying below 2°C (450 Scenario)

Global energy-related GHG emissions by scenario

Investments in Renewables should reach $400 bn/y by 2030 in the Bridge scenario. In the 450 scenario, the $400 bn/y should be reached by 2025 already,

then reach $470 bn/y on average over 2026-2040

© OECD/IEA 2015

0

50

100

150

200

250

300

2006 2008 2010 2012 2014 2016 2018 2020

USD

2014

/MWh

Brazil PPA Egypt PPA US PPA South Africa Round 4

How quickly can RE costs converge towards best world benchmarks?

Typical onshore wind levelised costs of electricity generation (2006-2020)

Medium-Term Benchmark cost 60-80$/MWh

A combination of price competition, long-term contracts, good resources and financial de-risking measures is creating deployment opportunities in newer markets and at lower costs

© OECD/IEA 2015

Market and regulatory risks can increase weighted average cost of capital and undermine competitiveness of PV and Wind power

Dubai

Central Africa

X

2X

Impact of cost of capital on the levelised generation cost of solar PV

Financing costs can dominate

© OECD/IEA 2015

3) Increase flexibility of other power system

components

Grids Generation

Storage Demand Side

1) Foster System-friendly

RE

Increasing variable RE will require more system flexibility

2) Better market design & operation

© OECD/IEA 2015

In the absence of the reforms that have been taken since the G20 in 2009, fossil fuel consumption subsidies would have been 24% higher in 2014 at $610 billion

100

200

300

400

500

600

700

2009

Bill

ion

do

llars

(2

01

4)

Contributing factors to the change in the value of subsidies between 2009 and 2014

Fossil-fuels subsidies remain persistent, but reforms make a difference

International prices

Consumption

2014

Subsidy reforms

© OECD/IEA 2015

IEA as partner of G20 energy agenda

Emergence of G20 as forum for global energy collaboration

Modernisation of IEA with strong bilateral cooperation with emerging economies and international organisations, incl. G20

IEA high-quality data and analysis across all fuels and countries

• Energy access – IEA role in global tracking framework (WEO 2014 energy access in SSA, WEO 2015 energy access in India and South East Asia) support to SE4ALL

• Renewable energy – IEA grid integration work, cost analysis, RE policies database and assessment, benchmarking, cooperation with IRENA

• Energy efficiency – data and policies (JEUDI, E4)

• Outreach partner for global technology and innovation collaboration (IEA Implementing Agreements)

• Energy security – beyond oil, to gas and electricity

© OECD/IEA 2015 © OECD/IEA 2015

• Energy Security

• Environmental Protection

• Economic Growth

• Engagement Worldwide