The ECOreport interviews Laszlo Varro, Chief Economist of the International Energy Agency (IEA) about energy investments in a transitioning world

By Roy L Hales

Though most of the world’s energy investments are still in fossil  fuels, their iron grip is weakening. The largest source of power investment was the $313 billion put into alternate energy sources like wind and solar. According to Laszlo Varro, Chief Economist of the International Energy Agency (IEA), last year there were more renewables coming online than the entire growth of the energy sector. In many developing countries, wind and solar are less expensive than using imported gas to produce electricity. Laszlo Varro, Chief Economist of the International Energy Agency, described energy investments as the world transitions to a low carbon economy.

Energy Investments In A Transitioning World

Chart taken from IEA's report WORLD ENERGY INVESTMENT 2016
Chart taken from IEA’s report WORLD ENERGY INVESTMENT 2016, access here

Coal usage is on the decline outside of India and Southeast Asia.

Half of the world’s supply is currently consumed by China, where demand has been declining for the past two years. This has been occurring at the same time as an increased reliance on renewables and nuclear energy.

“2014 might turn out to be the all time historic peak of Chinese coal demand. This is not sure, there is a lot of uncertainty, but it is a credible possibility. … If Chinese demand has indeed peaked and is in a structure of decline, that can mean a really low sustained period and you don’t need a pick-up of coal investment,” said Varro.

Renewables are expected to fill in the gap left by the corresponding decline of coal in the US and Europe.

The Impact of Solar and Wind

Though global investments in power fell 8% in 2015, the pace of new wind and solar installations drove electricity investments to an all time high.

(The growth of renewables also brought about a 40% drop in gas fired plant investments.)

“Wind and solar are doing very well in North America. There I would highlight the decision of the U.S. Congress, last year, to extend the wind credit and solar tax incentive. That was unexpected good news.  The great plains and rocky mountain areas, in the United States and Canada, are fantastically windy. For solar you can add (the region ) from Southern California to Arizona. It is one of the most effective solar places in the world,” said Varro.

Renewable Successes Still Fragile

“The recent success with renewables is still fragile and dependent on supportive policies. Government policy is absolutely essential. We have seen examples like the state of Nevada, an incredibly sunny place, where a change in the net metering policy knocked back the solar industry,”

“The number one thing governments can do is create stable investment conditions for the private sector. That can be done in several different ways. The United States uses tax credits. Mexico had a favourable experience running auctions for contracts.”

Investments In The Grid

A third of the European and North American electricity investments,  were for replacements for the aging grid. This includes  smart grids, energy storage and other technologies that will also enable a smoother integration of intermittent energy. Grid-scale battery storage investment has expanded tenfold since 2010.

“The true value of this (investment) is to compliment the electricity network, rather than supersede it,” said Varro.

Not Sufficient To Keep Below 2°C

The decarbonization of power generation is occurring too slowly to keep the rise of average global temperature increases below 2°C.

“The core issue is that oil dominates the transportation sector,” explained Varro.

The Transportation Sector

One of the challenges in North America is that many people prefer larger, more powerful, cars.

“Customers don’t want to pay for efficiency, they want to pay for a more powerful engine and other extras. One possible option is to drive the market towards smaller, lighter cars. That was achieved in France, for example, but I don’t think it will work in North America. The most promising option (for the automotive sector) is electric cars, in my view.”

Only this sector is still in its’ infancy and in 2015, the world’s total electric car sales only displaced about 10,000 barrels of oil.

There are other alternatives, such as walking, cycling and mass transit.

“For journeys of  up to around four hours, trains can directly compete with aviation. Investments in high-speed train infrastructure can raise overall fuel economy and reduce CO2 emissions. Among the ten busiest airline routes in the world in 2015, four routes are already served by high-speed trains,” said Varro.

Energy Efficiency Investments

He also had much to say about investments in energy efficiency, which rose 6% last year.

The dominant sector is buildings, where $42 billion was spent on energy efficiency retrofits.

“Improving poorly performing building stock is a key component of reducing greenhouse-gas emissions in mature economies,” said Varro.

He added, “The challenge is making building upgrades bankable. So the business model innovation plays as much of a role as the technology innovation.”

Varro had good things to say about programs like PACE (Property Assessed Clean Energy) financing, in the U.S, which makes it possible to finance improvements so that they can be paid off over time through the home/building owner’s tax bill.

However people normally do not upgrade washing machines, stoves and refrigerators etc – they buy new ones. So the driver in the appliance sector is advances in technology.

Top Photo Credit: 29 January 2016, IEA Staff PortraitsIEA, Paris, France – by  IEA/Michael Dean;

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