Trillions need to be spent on global energy infrastructure over the next 20 years to replace aging assets and keep up with growing demand, but the ability to fund the development is in question because the financing needed is "way beyond" the comfort zones of most private investors and government entities, the World Energy Council (WEC) said in a new report.
The report issued on Monday said almost $48 trillion would be required over the next two decades to replace deteriorating infrastructure, build expanding/new infrastructure, meet climate change targets and provide energy access to undeveloped parts of the world.
It's "time to get real," said the researchers. "Policymakers must focus on reducing political and regulatory risks. The financing infrastructure must exist for capital to flow easily to the energy sector." And the energy sector "must bring clearly bankable projects to the market."
The decisions that governments and investors make today could make or break the sustainability of global energy systems for years to come, according to "World Energy Trilemma: Time to Get Real -- the Myths and Realities of Financing Energy Systems." The "trilemma" is the balance of the three "core dimensions" of energy: energy security, universal access to affordable energy services; and environmentally sensitive production/use.
"Unlike many commentators' warnings, our report finds that capital is available in the private sector to the required scale, but investors and developers will have to invest way beyond their comfort zones, and they will need better help from governments, regulators, and international financial institutions than is currently envisaged," said Executive Chair Joan MacNaughton.
A collaborative approach is suggested to build a consensus nationally and globally, WEC suggested. Among other things, it suggested that research coalitions be formed to encourage joint pre-commercial industry initiatives. It also recommended identifying how investors' risk-reward equations could be aligned with the need to provide accessible and affordable energy.
"Stimulate the financial sector by ensuring public policy is attractive and business-friendly enough for money to flow," the authors said.
Financial infrastructure has to be in place for capital "to flow easily to the energy sector, while financiers must get more comfortable with investing in new technologies and developing countries with the greatest need for new infrastructure." In addition, the energy sector "must generate a robust pipeline of bankable projects."
WEC's report also includes the Energy Trilemma Index (ETI), a quantitative ranking that comparatively assesses how countries perform in delivering sustainable energy systems. Canada is ranked No. 6 and the United States is No. 12.
The ETI "highlights those countries that are able to balance energy demands to deliver more sustainable energy systems for their people and help secure long-term competitive economies," the researchers noted.
Although they didn't lead the index, Canada was No. 1 for energy security "with the United States maintaining its position as the most equitable energy system..."
Switzerland was the overall No. 1 leader on the ETI, followed by Sweden, Norway, the UK and Denmark. At No. 7 was Austria, followed by Finland, France, New Zealand and Germany. Of the ranked 129 countries, only three achieved an "AAA" score on their trilemma, with one, the UK, showing a downward trend in energy security.
The WEC promotes "affordable, stable and environmentally sensitive energy systems" that benefit the most people. The 2014 report was conducted with global management consultancy Oliver Wyman. The recommendations were based on interviews with nearly 50 leaders from international energy finance.