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energy security

Photo: IEA, Getty Images)

The electricity sector attracted the largest share of energy investments in 2017, sustained by robust spending on grids, exceeding the oil and gas industry for the second year in row, as the energy sector moves toward greater electrification, according to the International Energy Agency’s latest review of global energy spending. Global energy investment totalled USD 1.8 trillion in 2017, a 2% decline in real terms from the previous year, according to the World Energy Investment 2018 report. More than USD 750 billion went to the electricity sector while USD 715 billion was spent on oil and gas supply globally.

State-backed investments are accounting for a rising share of global energy investment, as state-owned enterprises have remained more resilient in oil and gas and thermal power compared with private actors. The share of global energy investment driven by state-owned enterprises increased over the past five years to over 40% in 2017.

Meanwhile, government policies are playing a growing role in driving private spending. Across all power sector investments, more than 95% of investment is now based on regulation or contracts for remuneration, with a dwindling role for new projects based solely on revenues from variable pricing in competitive wholesale markets. Investment in energy efficiency is particularly linked to government policy, often through energy performance standards.

The report also finds that after several years of growth, combined global investment in renewables and energy efficiency declined by 3% in 2017 and there is a risk that it will slow further this year. For instance, investment in renewable power, which accounted for two-thirds of power generation spending, dropped 7% in 2017. Recent policy changes in China linked to support for the deployment of solar PV raise the risk of a slowdown in investment this year. As China accounts for more than 40% of global investment in solar PV, its policy changes have global implications.

While energy efficiency showed some of the strongest expansion in 2017, it was not enough to offset the decline in renewables. Moreover, efficiency investment growth has weakened in the past year as policy activity showed signs of slowing down.

The share of fossil fuels in energy supply investment rose last year for the first time since 2014, as spending in oil and gas increased modestly. Meanwhile, retirements of nuclear power plants exceeded new construction starts as investment in the sector declined to its lowest level in five years in 2017. The share of national oil companies in total oil and gas upstream investment remained near record highs, a trend expected to persist in 2018.

Though still a small part of the market, electric vehicles now account for much of the growth in global passenger vehicle sales, spurred by government purchase incentives. Nearly one quarter of the global value of EV sales in 2017 came from the budgets of governments, who are allocating more capital to support the sector each year.

Final investment decisions for coal power plants to be built in the coming years declined for a second straight year, reaching a third of their 2010 level. However, despite declining global capacity additions, and an elevated level of retirements of existing plants, the global coal fleet continued to expand in 2017, mostly due to markets in Asia. And while there was a shift towards more efficient plants, 60% of currently operating capacity uses inefficient subcritical technology.

The report finds that the prospects of the US shale industry are improving. Between 2010 and 2014, companies spent up to USD 1.8 for each dollar of revenue. However, the industry has almost halved its breakeven price, providing a more sustainable basis for future expansion. This underpins a record increase in US light tight oil production of 1.3 million barrels a day in 2018.

The improved prospects for the US shale sector contrast with the rest of the upstream oil and gas industry. Investment in conventional oil projects, which are responsible for the bulk of global supply, remains subdued. Investment in new conventional capacity is set to plunge in 2018 to about one-third of the total, a multi-year low raising concerns about the long-term adequacy of supply.

Source: IEA

European Parliament’s Committee on Industry, Research and Energy (ITRE) voted on Wednesday February 21 to modernise the EU’s electricity market, striving to give consumers more choice and greater energy security. The ITRE amended four legislative proposals on the EU electricity market. They are part of the so-called Clean Energy package and a step closer to an Energy Union

According to the ITRE, more competition in the electricity market, better information to consumers and small energy producers and plans to tackle shortages during crises are addressed in this energy package. The measures would provide comparison tools on energy providers, transparent bills and contracts, as well as help consumers who produce their own electricity and enhance regional cooperation during electricity crises due to natural disasters or attacks.

MEPs also want member states to consider additional payments to capacity providers only as a last resort and under certain conditions.

Giving more power to consumers

• A comparison tool should be available in each EU country, displaying and ranking rates and tariffs from all suppliers, with an impartial algorithm and independent from suppliers;
• Consumers should be able to withdraw from a contract without facing penalties, and a summary of key conditions should be included on the first page;
• By January 2022, switching supplier should take no longer than 24 hours;
• Bills should display the actual amount of energy consumed, the payment due date, contact details of the company, as well as rules on switching provider and dispute settlement.

Active energy consumers

MEPs do not want consumers who generate, consume and sell energy to be discriminated against (also called “prosumers” – active energy consumers, because they both consume and produce electricity).

MEPs agreed in particular on clear conditions for creating and managing local energy communities, i.e. groups of people producing and consuming energy locally. These local networks should contribute to the costs of the electricity system they connect to and not distort competition, MEPs added.

Measures to tackle energy crisis

In the event of an electricity supply shortage, MEPs agreed on national and regional measures to be implemented before and during crises to ensure that supply is not stopped due to e.g. adverse weather conditions or malicious attacks, such as malware or hacking.

Regional coordination centres should help to draft crisis planning scenarios, while the European Agency for the Cooperation of Energy Regulators (ACER) should be able to ensure that they comply with their obligations.

Source: European Parliament

The European Commission has released new proposals for a raft of measures which will shore-up prevention of gas crises and ensure better coordination and support between EU countries in any gas supply disruption. The proposals will also tighten-up so-called intergovernmental agreements in the energy field between EU and non-EU countries and set out a strategy for boosting energy security through access to LNG and gas storage. Furthermore, addressing the potential for improving energy efficiency and the use of renewable energy in the sector with the first ever dedicated strategy, the Commission presents the way forward to move towards a smart, efficient and sustainable heating and cooling system.

These proposals are part of the Commission’s Energy Union strategy and will give a strong push to improving the EU’s energy security and solidarity. They are also in line with the EU’s commitments to fighting climate change taken at the Paris climate summit towards the end of last year.

The Energy Union Strategy, launched one year ago, promised to provide all Europeans with energy which is secure, sustainable, and competitive. Today’s package focuses on the security of our supply, but touches upon all three overarching goals. By reducing our energy demand, and better managing our supply from external sources we are delivering on our promise and enhancing the stability of Europe’s energy market,” Maroš Šefčovič, Commission Vice-President for Energy Union, said.

After the gas crises of 2006 and 2009 that left many millions out in the cold, we said: ‘Never again’. But the stress tests of 2014 showed we are still far too vulnerable to major disruption of gas supplies. And the political tensions on our borders are a sharp reminder that this problem will not just go away. Today’s proposals are about a reliable, competitive and flexible system in which energy flows across borders and consumers reap the benefits. They are about standing together to protect the most vulnerable. And they are about securing our clean energy future: I can assure that our commitment to a clean energy transition is irreversible and non-negotiable,” Miguel Arias Cañete, Commissioner for Climate Action and Energy, said.

On gas crisis prevention, the Commission plans to improve coordination between EU countries and create rules that would require an EU country to help out its neighbour if it is experiencing a very severe gas crisis. Under the so-called solidarity principle, an EU country in trouble would see gas supplies to its households and essential services ensured by neighbouring EU countries.

Gas currently covers one quarter of the EU’s energy consumption and the EU is the biggest gas importer in the world. The expected decline of domestic EU gas production will also impact on gas imports. Besides, gas is also seen to play a determinant role in accompanying the EU’s transition to a low carbon energy system since it is a back-up fuel for renewables when weather conditions hamper renewable energy production. The Commission has also published a proposal to tighten-up so-called intergovernmental energy agreements between an EU country and a non-EU country. The new rules will allow the Commission to take action before such agreements are signed if it assesses that such an agreement could affect the security of gas supplies in another EU country or hamper the functioning of the EU’s energy market.

Finally, the Commission has outlined how better access to a rapidly developing global market in Liquefied Natural Gas (LNG) and better use of gas storage across the EU would allow EU countries that are dependent on very few gas suppliers to diversify their supply and hence strengthen their energy security.

For heating and cooling, the Commission has launched its first ever strategy to tackle the massive use of energy, particularly fossil fuels, in the sector. Heating and cooling accounts for 50% of the EU’s energy consumption and renewables account for just 18% of this. The strategy includes plans to boost the energy efficiency of buildings, improve linkages between electricity systems and district heating systems which will greatly increase the use of renewable energy, and encourage reuse of waste heat and cold generated by industry.

It also aims to ease access to information for consumers to allow them to better understand their energy use and make informed choices that could save energy, as well as inform them on possible energy efficient renovations and options for generating their own energy with renewables.

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Renewable energy will represent the largest single source of electricity growth over the next five years, driven by falling costs and aggressive expansion in emerging economies, the IEA said in an annual market report. Pointing to the great promise renewables hold for affordably mitigating climate change and enhancing energy security, the report warns governments to reduce policy uncertainties that are acting as brakes on greater deployment.

Renewables are poised to seize the crucial top spot in global power supply growth, but this is hardly time for complacency,” said IEA Executive Director Fatih Birol as he released the IEA’s Medium-Term Renewable Energy Market Report 2015 (MTRMR) at the G20 Energy Ministers Meeting. “Governments must remove the question marks over renewables if these technologies are to achieve their full potential, and put our energy system on a more secure, sustainable path.

Renewable electricity additions over the next five years will top 700 GW – more than twice Japan’s current installed power capacity. They will account for almost two-thirds of net additions to global power capacity – that is, the amount of new capacity that is added, minus scheduled retirements of existing power plants. Non-hydro sources such as wind and solar PV will represent nearly half of the total global power capacity increase.

The report sees the share of renewable energy in global power generation rising to over 26% by 2020 from 22% in 2013 – a remarkable shift in a very limited period of time. By 2020, the amount of global electricity generation coming from renewable energy will be higher than today’s combined electricity demand of China, India and Brazil.

The report says the geography of deployment will increasingly shift to emerging economies and developing countries, which will make up two-thirds of the renewable electricity expansion to 2020. China alone will account for nearly 40% of total renewable power capacity growth and requires almost one-third of new investment to 2020.

Declining costs drive growth

Renewable generation costs have declined in many parts of the world due to sustained technology progress, improved financing conditions and expansion of deployment to newer markets with better resources. Announced prices for long-term generation contracts at reduced levels are emerging in areas as diverse as Brazil, India, the Middle East, South Africa and the United States. As such, some countries and regions now have the potential to leapfrog to a development paradigm mainly based on increasingly affordable renewable power. This is especially true in Sub-Saharan Africa.

Affordable renewables are set to dominate the emerging power systems of the world,” Dr. Birol said. “With excellent hydro, solar and wind resources, improving cost-effectiveness and policy momentum, renewables can play a critical role in supporting economic growth and energy access in sub-Saharan Africa, meeting almost two-thirds of the region’s new demand needs over the next five years.

Still, the MTRMR highlights risks. Financing remains key to achieving sustained investment. Regulatory barriers, grid constraints, and macroeconomic conditions pose challenges in many emerging economies. In industrialised countries, the rapid deployment of renewables requires scaling down fossil-fired power plants, putting incumbent utilities under pressure. Wavering policy commitments to decarbonisation and diversification in response to such effects can undermine investor confidence and retroactive changes can destroy it. Consequently, global growth in the report’s main case forecast is not as fast as it could be – and annual installations level off, falling short of what’s needed to put renewables on track to meet longer-term climate change objectives.

The report includes an accelerated case that assesses the impacts of enhanced policy frameworks in key countries, finding that this could boost global cumulative renewable power growth by 25% above the main case, with rising annual installations. An improving picture for renewables can have positive ramifications for global climate change negotiations. At the same time, a clear, supportive outcome from the COP21 climate negotiations in Paris in December could create a virtuous cycle for renewable deployment by increasing long-term policy vision and predictability.

But the accelerated case requires more coherent and committed policy action. “To be sure, system and grid integration will be crucial for enabling high levels of wind and solar PV. The IEA remains at the forefront of addressing these issues, including possible impacts on electricity security,” concluded Dr. Birol.“But while variability of renewables is a challenge that energy systems can learn to adapt to, variability of policies poses a far greater risk.

The Medium-Term Renewable Energy Market Report 2015 is part of a series of annual reports the IEA devotes to each of the main primary energy sources: oil, gas, coal, renewable energy and–as of 2013 –energy efficiency. The report is for sale by the IEA bookshop.

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