On July 11th, the International Energy Agency (IEA) published its yearly report about the World Energy Investment trends in 2016, revealing important intel on the attractiveness of each energy sector during last year and the trends in terms of development and initiatives.
The report presents key analysis of developments and investments in all fuels and energy technologies in the previous years, revealing critical findings and comparing energy markets as well as exposing new features and discoveries in both developed and emerging markets. Reports such as this also work as a forecast for how energy supply and demand will be based on current investments and developments, being complemented by other projections published in further IEA publications.
2016 was a curious year with unprecedent low levels of prices in all energy commodities and with record levels of renewable energy participation, with several cases of entire days being supplied only with renewable energy, for instance in countries like Portugal or Denmark. Nevertheless, 2016 was also a year of minimum prices on crude that affected directly many oil based economies, so this report is important to see how different entities invested considering this scenario.
ENERGY INVESTMENT BY SECTOR
For the second consecutive year, EIA reported a fall in total energy investment, with 2016 gathering an amount of 1.7 trillion dollars, 12% less than 2015 and 15% lower than the record level registered in 2014 (2.0 trillion dollars).
2016 was a milestone for the Electricity Sector since that, for the first time, this sector surpassed the Oil & Gas Sector and became the largest area of energy investment, with 718 billion U.S. dollars against the 649 B$ in this fossil energy sector. It is important to highlight though, that this didn’t happen due to increased investment in this sector, since it decreased by 1% YoY, but because of the major fall in investment in the oil & gas sector due to consecutive falls in wholesale prices of oil and natural gas.
Still, the fall in the electricity sector does not mean that less developments were made. In fact, renewable energy capacity grew 50%, despite less money spent on renewable developments. This info sends a clear and powerful message about how unit costs are reducing and how the tech is improving, especially in Photovoltaic (PV) and wind.
Figure 1- Energy investment by Sector in 2016, Source: IEA – World Energy Investment 2017
YEAR OF THE SOLAR
2016 was definitely the year of solar PV with technologies like TrueCapture from NEXTracker, Tesla’s Solar Roof or projects like floating solar farms that put solar power back on track as one of the best alternatives towards a low carbon energy transition. The installed capacity grew 50% YoY thanks to 70 – 75 GW of new installed capacity, with China leading the ranking with more than 38 GW, followed by USA, Japan, EU and India.
In terms of contracts for new investments in the renewable sector, last year was also crucial for change in the way policies are being applied. Almost 70 countries already changed from a policy of government-set tariffs to competitive tenders with long-term power purchase agreements (PPA), 50 more than in 2010. This change contributed for the global record low prices for projects contracts signed in Chile and in UAE with costs below the 30$/MWh and in India prices reduced in one third compared to 2015 (to 55 $/MWh).
AIMING FOR ENERGY SECURITY
Other important areas where more money was invested were Networks and Storage as these two areas constitute key-elements for a successful energy transition free of emissions. Energy storage has been the main challenge to fight thermal power plants due to the intermittency of wind and solar power (great article about Storage here).
It was definitely a year of mixed directions for storage, with lithium-ion batteries positioning itself as the main storage technology due to the significant cost reductions and great scale-up of manufacturing capacities. On the other hand, only 500 MW of storage capacity was installed in 2016 (despite the 1 GW forecasted), representing a fall compared to 2015. It is relevant to highlight the developments acquired in the new approach of home storage batteries with Tesla’s Powerwall leading this trend of “behind-the-meter” storage market. Market that surpassed the 1 billion USD. Estimations forecast that this market will grow from the current 100 MW to 3.8 GW until 2025, so the important movement in terms of investment in this sector was about larger funds acquiring start-ups dedicated to developing next-generations storage technologies.
Focusing on networks and power grids, this area was crowned as king of investment in 2016 with China leading (again) with 30% of the spending by developing large-scale transmission infrastructures and also improving distribution networks. Another boom detected took place in India and in Southeast Asia where electrification is growing rapidly receiving 13% of the total money invested in Networks. In Europe and in the U.S., money was invested in modernizing aged transmission and distributions structures. One of the crucial goals towards a more flexible and sustainable energy market is to pass from a unilateral pure electricity delivery business to an integrated platform for data and services.
The Paris Agreement seemed to have produced significant impact in terms of air pollution awareness (or at least I want to believe so) since coal-fired plants fell hard in 2016 as much has 20 GW. Global CO2 emissions even stalled for the third consecutive year according to the study published also by IEA earlier this year. However, coal continues to be part of 40% of global power generation and not much has been made in terms of policies to transform the current reality. Moreover, we have been witnessing lately, especially in Europe, that coal has been participating strongly, used as a substitute of hydropower. In Spain, for example, coal grew 10% in the Spanish Energy mix in the first half of 2017 comparing to the same period of 2016 producing 12 TWh more electricity (see Fig.2).
Figure 2 – Energy Mix Evolution Spain – 1st half, Source: Magnus – REE
E-MOBILITY ON ITS WAY
750 000 electric vehicles were sold last year, one third more than 2015 and stating a new mindset in terms of mobility. As top sellers, we have the Chinese BYD, American Tesla (of course) and the German BMW that surprisingly doubled their volume of EVs sold YoY. Still, the growth of the EV industry seems insufficient to fight oil consumption since, according to the report, the real impact of those 750 thousand electric vehicles will reduce just 0.02% of the oil global demand.
Some experts in the sector affirm that the domestic vehicles are just a small part of the solution and that efforts should be made towards better charging infrastructures and also to develop heavy vehicles such as people and goods transportation, or buses and trucks to be more accurate.
According to the latest report from EIA on EVs (find it here), 345 000 of the 750 000 EVs sold in 2016 were battery-powered electric buses, sending a clear signal of intention to go green in a near future. Shenzhen has the goal to have only 100% electric buses circulating by 2017. The European Union also increased its fleet of electric bus with over 1 200 vehicles.
The technology behind electric trucks is still evolving being the current best solution hybrid models such as The Volvo Concept Truck, launched in May 2016 but Mercedes and Tesla are fighting to be the first company having the full battery electric heavy truck in the market. The first line of trucks under development have around 200 km of autonomy and should be used to city/regional purposes.
However, the real impact of more electric vehicles circulating is yet to be quantified and evaluated because emissions can decrease as we are directly substituting combustion engines for electric ones but we still must charge the batteries that give power to those electric engines so challenges on the supply side arise.
The impact of EV’s in the electric grid will have consequences at the generation market level, where higher demand at times of less capacity availability can increase the wholesale prices, and at transmission level it may increase the unpredictability of the energy injection/demand from/on the grid demanding more frequency control and the need to maintain more reserve power capacity. also at the distribution level, congestion can occur causing voltage drops and accelerate deterioration of local grid infrastructure and, consequently, power interruptions.
Here, the usage patterns will have a crucial role to adapt and choose the best charging systems that should be deployed to mitigate as much as possible the impact of EVs charging in the grid.
Last year, the growth of publicly accessible charging points accompanied the growth of EV stocks reaching 320 000 units globally, resulting 72% more than 2015. These successes are driven by the multiple benefits EVs can bring to governments and citizens such as more energy security, urban air quality, noise mitigation and greenhouse gas reductions.
Electric mobility is finally a reality and is a revolution that is just starting. According to the forecasts, by 2020 between 9 to 20 million EVs will be circulating, numbers that will grow between 40 million and 70 million until 2025.
LESS CAN MEAN MORE
Investment decreased compared to 2015, but key markets like renewable energy, energy efficiency and EVs actually grew in 2016, going on the opposite direction of Fossil Fuels that saw investment falling in the sector. This new reality can mean that governments and the World in general is changing, aiming for a more sustainable and clean planet, through profitable alternatives. Less global investment also means that costs are being reduced abruptly and new clean technologies and approaches are being deployed to public at competitive prices and with good levels of acceptance.
In terms of policies, the Paris agreement, the EVI and other global initiatives towards a low carbon economy are having a huge impact in global and local policies but there is still a lot to do and to improve. Some Governments still must go further and others really must stop “avoiding” the change because there is still time to leave something to our next generations.
Jorge Seabra | Energy Consultant