IEA WORLD ENERGY INVESTMENT OUTLOOK: Executive Summary
Decisions to commit capital to the energy sector are increasingly shaped by government policy measures and incentives, rather than by signals coming from competitive markets. In many countries, governments have direct influence over energy sector investment, for example, through retained ownership of more than 70% of global oil and gas reserves or control of nearly half of the world’s power generation capacity, via state-owned companies. Some governments, notably in the OECD, stepped back from direct influence when opening energy markets to competition, but many have now stepped back in, typically to promote the deployment of low-carbon sources of electricity. In the oil sector, reliance on countries with more restrictive terms of access to their resources is set to grow, as output from North America plateaus and then falls back from the mid-2020s onwards. In the electricity sector, administrative signals or regulated rates of return have become, by far, the most important drivers for investment: the share of investment in competitive parts of electricity markets has fallen from about one-third of the global total ten years ago to around 10% today. With current market designs, of the $16 trillion required in the power sector to 2035, investment in competitive parts of electricity markets would account for less than $1 trillion.
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The investment required to maintain the reliability of Europe’s electricity system is unlikely to materialise with the current design of power markets. Europe requires more than $2 trillion in power sector investment to 2035 and, alongside vigorous continued expansion in low-carbon generation, around 100 GW of new thermal capacity needs to be added already in the decade to 2025. Despite public and political concern about high prices to end-users, the wholesale price for electricity is too low at present, by more than 20%, to incentivise the investment required in new thermal plants. If this situation persists, the reliability of European electricity supply will be put at risk. Part of the solution involves higher revenues to thermal generators, but this potentially means higher prices to consumers, underlining the difficulties facing European policymakers as they seek to make simultaneous progress towards ensuring energy security, environment
sustainability and economic competitiveness...
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