In this study, key global energy investment issues will tried to be analyzed through the short and basic answers of some questions.
Q1) What can we say about the main global trends in energy investments?
- (According to IEA reports) Globally around %2 of the total GDP was invested directly in the energy sector. This volume is around (slightly lower than) 2 trillion $.
- Although the investment volume was following a small incremental rate, in pandemic era this rate was minus and in 2021 recuperated.
- By eliminating the results and the negative effects of the pandemic, oil & gas and the electricity sectors are the main investment areas.
- In pandemic era, investments in oil and gas sector decreased sharply but in the coming normalization period, due to increasing demand and insufficient supply, the sector has started to be build up.
- Around %60 of the oil and gas investments usually is directed to the upstream sector and the remaining is in the mid & down stream areas.
- For electricity, again around %60 of the total investments are done in the power generation and the remaining part is for the electricity networks.
- Energy investments in all sectors, except the energy efficiency, in non-OECD countries are higher than the volumes in OECD countries.
Q2) Why energy investments in energy efficiency, in non-OECD countries are in lower levels (while in the other sectors are higher) than the OECD countries?
- From a basic approach, OECD economies are generally developed and their energy demand growth is not as high as the developing and energy starving non-OECD countries.
- That is why; for a developing country, the vital point is to meet the demand as soon as possible and usually, efficiency and GHG emission mitigation issues are luxury.
- However, for most of the OECD countries, existing energy infrastructures, technological and financial capabilities are more stable and there is a good chance for new investments in efficiency issues.
Q3) China is the biggest investor in energy sector in the world. Can we claim that, China’s energy wealth is higher than the other developed countries?
- No, as the situation in the second question, China is the biggest energy starving country in the world. Moreover, its economy and development targets are much more fragile, while considering a possible energy supply risk. Due to this fact, China has to invest huge amounts of money in energy sector. And it has the due financial and technological capabilities to continue such amount of investments.
Q4) Why do we need to know/estimate the future energy investment demands locally or globally?
- Energy is a capital-intensive sector and nearly all energy investment projects need to be studied carefully to be realized, by considering different long term aspects. Moreover, nearly for all energy projects, investment decision taking and construction periods need an important time gap to be managed. This means, without a successful planning period, none of the governments can solve their energy supply problems instantly. That is why, from the local and national side; to have a sustainable energy supply, energy investment planning is a vital issue.
- From the global side, mostly regarding with the GHG emission and transition targets, UNDP’s energy related targets and global market risk mitigation issues; the world needs a common planning on energy investment issues and targets.
Q5) Is there a globally accepted long term energy investment roadmap and energy transition policy package?
- No, only the current popular commonly accepted point is to “try to decrease the GHG emissions”. However, in a more realistic perspective; there is not a concession among the annex and non-annex countries regarding with the current solutions and roadmaps.
- That is why; there are different studies, projections and roadmaps on energy transition and investment issues, which were prepared by some international, national, civil or private organizations. However, none of those accepted widely (except some parts of the IPCC reports).
- In addition, most of the popular declared roadmaps includes incoherent advices and some political directives.
Q6) Which organizations prepare such long term roadmaps and what are the general unrealistic points in their projections?
- There are many different organizations announcing different long term scenarios on the energy investment and transition issues. For example, IEA, IRENA, OPEC, BP, Exxon, Shell, CNPC, EIA can be accepted as the most popular ones. However, usually the Western organizations try to suppress the developing economies to apply for an early greener transition scenario, by neglecting their capabilities and development targets (in a more political perspective, although they know the real cases for the due weak economies).
- Their weakest points (which are the main unrealistic sides) are usually in:
- Assuming a better performance during evaluating the mitigation capabilities and the transition projections of the developing and undeveloped economies.
- Under estimating their highly growing demand.
- Insufficiencies during understanding non-Annex economies’ social tendencies while they are economically strengthening.
- Not completely taking into consideration of the global oil exporters’ interests, expectations and strategies in the long term transition adventure.
- Not clearly and realistically evaluating the technology – cost – commerciality perspectives.
- Not coherently estimating the investment needs in different energy sectors during transition attempts, such as the electricity infrastructures and oil & gas sectoral losses.
- Due these facts, when the scenarios put forward in the past are examined, it can easily be understood that even institutions such as the IEA have made big mistakes during their analysis and advices.
- Note: By taking these points into consideration, TESPAM is also trying to put a new approach for the global long term demand and transition projections. Within this regard, TESPAM claims that the current budget demanded to reach the global GHG mitigation targets (accepted in Paris Agreement) is much more higher than 300 trillion USD up to 2050’s.
Q6) What can be the main financial sources for such a huge budget for energy transition investments?
- Financial sources can be public sector entities, governmental budgets, financial institutions, private sector or international funds.
- These sources can feed the demand through different ways of applications. Such as, grants, debts, equity financing, project financing, credits, leasing, incentives, etc.
- In addition to these traditional styles, joint implementation, the clean development mechanisms and global environment facility can be accepted other new types of funding.
- However, within the regard of the GHG mitigation expectations, current volume of the investments, which are mostly, can be assumed as a burden on the shoulders of the public sector will not be enough. In addition to these, financing mechanisms changes according to the situation of each country.
Q7) How the source of finance mechanisms and trends change according to the development status of a country?
- According to the IEA and IRENA, three factors directly influence the energy sector investments, which are macro-economic conditions, cost trends and governmental policies.
- While the economies are growing, it is globally easy to find finance but in the vice versa, in the crisis times, funds become scarce and the capital costs increase.
- However, for an undeveloped or developing country, for a politically isolated/embargos applied country, for an insecure risky country these general trends will not be observed.
- In a developed, low risky, non-isolated and mature market conditions; private sector investment will be the predominant source of funding.
- In emerging economies and isolated markets, state owned enterprises and governmental budget will be the dominant source of funding.
- In the low-income economies, while the government also will not have enough capabilities to finance the investments, then the main source will be the international development agencies.
Q8) Why the mobilization of the capital is very important for a more realistic transition scenario? Can the developed countries take the financial burden of the undeveloped economies?
- Capital mobilization is very important for a more realistic transition scenario. Hence, for a successful mitigation plan, developed countries initially focus on the future’s big carbon emitters, which are usually the developing or undeveloped economies.
- Currently these non-Annex economies do not be formally challenged by the developed countries. Because they do not have enough technical – infrastructural – financial – technological capabilities nor to meet their growing energy demands neither their GHG emissions.
- The first point to change this situation and to have a fair and applicable financing mechanism.
- At this point we have to consider that much of these poor countries do not have the technical capability to submit professionally prepared projects to the international funds.
- High cost of financing in undeveloped countries is another key issue that has to resolved.
- Moreover, usually the renewable capacity factors are higher in the regions of undeveloped countries by comparison with the developed countries, which means higher profits for the funders.
- That’s why, capital mobilization from the developed economies to the undeveloped countries is very important.
- However, current conditions show that this financial burden will not be carried by the developed countries.
Q9) What are the main factors influencing the investments in energy sector?
- As mentioned above, according to the IEA and IRENA, three factors directly influence the energy sector investments, which are macro-economic conditions, cost trends and governmental policies.
- In addition to these, project risk categories also can be used as a tool for investment influencing factors. For example, according to IRENA, there are 9 main risks for renewable energy investment. They are political risk, policy or regulatory risk, counterparty risk, grid and transmission risk, technology risk, currency risk, liquidity risk, refinancing risk, resource risk. In this concept, these risks also can be accepted as the main factors influencing the investment in due sector.
Q10) While the cost trends are so important, how the costs of energy investment projects can be decreased?
- Costs generally will decrease with:
- Commercially available technological improvement,
- Duty and custom costs decrease,
- Decrease in risks and uncertainty,
- Higher experience,
- Lower input costs,
- Higher efficiency,
- Logistic costs decrease,
- Tariff costs decrease,
- More stable governmental policies,
- Lower taxes,
- Lower service costs, personel costs,
- Defined and mature regulative environment,
- Higher level of grants, support and incentives,