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New energy finance still flows heavily to the same old fuels, global study finds

The world is off-track for long-term sustainability, and maybe for meeting short-term demand growth as well.

coal
Investment increases in the two “supply sectors,” coal and oil & gas, were slight at 2 and 1 percent respectively, but reversed a two-year decline.
REUTERS/Daniel Munoz

As a rule, mainstream media coverage of the clean energy transition tends to spotlight the positive and progressive example, the hopeful endeavor, the gee-whiz invention, the encouraging indicator.

Think of recent headlines you’ve seen, perhaps reporting that despite President Donald Trump’s fondness for fossil fuels, coal plants have been shutting down at a faster clip in his administration than in Barack Obama’s. Closer to home, the subject might have been a ribbon-cutting at a new solar farm. Or maybe it was coming improvements in battery design or appliance efficiency, new opportunities for homeowners to shift power purchases toward greener suppliers instead of re-roofing with PV panels. …

Year after year, the general run of coverage seems to suggest, the economic trend lines have been aggregating in the right direction: costs of green power falling, renewables’ market share expanding, overall investment in clean power accelerating. Sure, cheap natural gas has been a bit of a drag on  the fossil phase-out – but hey, it’s still cleaner than coal.

I’ve written my share of these pieces over the years, so it’s with some sense of obligation that I direct your attention today to a new and truly big-picture look these trends, courtesy of the International Energy Agency. Its “World Energy Investment 2019,” issued a couple of weeks ago, reaches conclusions that are decidedly mixed but far less encouraging than the standard narrative.

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Probably there is no better source of big-picture information and analysis than the IEA’s annual assessment at global scale – the only scale that really matters to planetary survival – for how investment is moving the world’s energy systems in the right direction. Or not.

But unless you read the trade press, with its higher tolerance for tough subjects and technical prose, the odds are high that you haven’t seen a single mention of WEI2019’s clear and sobering conclusions, including this key introductory statement from IEA’s executive director, Fatih Birol:

Current market and policy signals are not incentivizing the major reallocation of capital to low-carbon power and efficiency that would align with a sustainable energy future.

In the absence of such a shift, there is a growing possibility that investment in fuel supply will also fall short of what is needed to satisfy growing demand.

In other words: Governments, businesses and private investors continue to finance energy systems that are not only unsustainable in the long run, but may not always be adequate to keep the trains running, the homes heated and the lights on in the short run.

Money flows to fossils

WEI2019 is the fourth in this series of annual lookbacks, and it finds that total global investment in energy production stabilized last year after three years of decline, at about $1.8 trillion. But the stability results from a see-saw effect in which increased spending to boost supplies of oil, gas and coal were offset by decreased spending on power generation, both from renewables and fossil fuels. Also, accelerating demand for fuels and electricity.

Breaking the investments into five sectors, the analysis found investment growth in two, declines in two and a flat line for a critical  fifth:

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Investment increases in the two “supply sectors,” Coal and Oil & gas, were slight at 2 and 1 percent respectively, but reversed a two-year decline (which in turn followed a decade of steady growth). Both no doubt reflect another significant but unhelpful trend: World demand for energy is growing, and demand for electric power is growing twice as fast as overall energy demand; a large driver of that is a big jump last year in global sales of air conditioners (especially in China and India) and heat pumps (especially in Europe and North America).

Unfortunately, most of that new juice will continue to come from the bad old fuel sources:

Even as costs fall in some areas, investment activity in low-carbon supply and demand is stalling, in part due to insufficient policy focus to address persistent risks.

In the [IEA’s] Sustainable Development Scenario, the share of low-carbon investment rises to 65% by 2030, but advancing from today’s share of 35% would require a step-change in policy focus, new financing solutions at consumer and bulk power levels and faster technological progress, including more RD&D, amid sustained spend[ing] on electricity grids.

Fracking’s a big draw

It would also require, unfortunately, a major change of heart among investors, and reversal of preferences that grew stronger last year:

Energy supply spending has shifted broadly towards projects with shorter lead times, partly reflecting investor preferences for better managing capital at risk amid uncertainties over the future direction of the energy system.

Among those opportunities with shorter lead times are new fracking operations for gas and oil in the United States, where new investment contributed heavily to the overall increase in the oil/gas supply category.

The Power sector, which includes electric generation from fossil fuels, renewables and nuclear, along with distribution networks (and a tiny sliver for battery storage), was down 1 percent.

Among the sub-sectors, the money flow was down for coal- and gas-fired power plants, renewables and networks; nuclear was up a bit, mostly because of new plants in China. Investment in battery storage – critical to the reliability of renewable power – also rose, and by a whopping 45 percent, reaching just $4 billion in total.

 

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A fourth sector, Renewables for transport and fuel, is tiny in comparison with the others; it tracks biofuels like ethanol and biodiesel, as well as capture of solar energy for thermal heating instead of power generation. It was down 1 percent.

The fifth is Energy efficiency, where investment activity was rated as stable in 2018 compared to 2017 (and, if you look deeper, essentially unchanged over the last four years both in global aggregate and by  region).

And this might actually be the true heartbreaker among the WEI2019 findings, for as any energy expert who isn’t trying to sell you more will tell you, a dollar invested in avoiding energy consumption returns far bigger dividends in climate protection, public health and environmental integrity than a dollar invested in any way of making energy production and consumption more benign. Not to mention lowering your costs.

Among the efficiency sub-sectors, investments in transportation grew a bit, but investments in energy-efficient buildings – perhaps the prime opportunity for big conservation gains – actually fell by 2 percent last year.

In total, efficiency investments totaled $240 billion last year – just about 13 percent of the $1.8 trillion in investment activity tracked by IEA.

To be clear, I don’t mean to say there isn’t any good news to be found in WEI2019. All of the oft-reported progress in building new solar farms and mothballing power plants is reflected here. But let there be no doubt that its central message is about mismatches between current practice and future needs:

Today’s investment trends are misaligned with where the world appears to be heading. Notably, approvals of new conventional oil and gas projects fall short of what would be needed to meet continued robust demand growth. There are few signs in the data of a major reallocation of capital required to bring investment in line with the Paris Agreement and other sustainable development goals.