Project Transitions : The Investment Challenge for Creating a Sustainable and Secure Energy Infrastructure

The Investment Challenge for Creating a Sustainable and Secure Energy Infrastructure

Overview

The International Energy Agency (IEA) has launched PROJECT TRANSITIONS, a multi-stakeholder research program aimed at addressing the complexities of energy infrastructure investment. This program seeks to determine effective policy responses through micro-scale analysis from an investor's perspective.

Key Findings and Challenges

1. Investment Needs: By 2030, the energy sector requires approximately $26 trillion in investments to sustain current trends. However, business-as-usual practices are unsustainable due to their negative impacts on energy security and climate change.

2. Infrastructure Inertia: Energy infrastructure has a long useful life and emits significant greenhouse gases (GHG). This inertia complicates efforts to mitigate climate change and enhance energy security. For instance, existing power plants will account for over 75% of energy-related CO2 emissions in 2020 and 50% in 2030.

3. Climate Goals: To stabilize GHG emissions at twice pre-industrial levels, they need to be reduced to nearly net zero after accounting for GHG sinks. The Intergovernmental Panel on Climate Change (IPCC) suggests that global GHG emissions must peak by 2030. Achieving this goal would require additional costs ranging from 0.25% to 0.6% of GDP.

4. Capital Stock Turnover: Slow capital stock turnover rates mean that existing energy infrastructure remains "locked in" for decades, making it challenging to reduce emissions efficiently.

Analytical Framework

1. Sectoral, National, and International Levels: Analysis will cover multiple dimensions, including refurbishment versus replacement, investment and technology choices, and policy analysis.

2. IEA Real Options Model (IEA ROM): This model will be modified to accommodate various investment drivers, sectors, and industries, providing quantitative insights into investment uncertainty.

Current PROJECT TRANSITIONS Studies

1. Energy Capital-Stock Turnover: This study examines the relationship between energy capital stock turnover rates and the dual challenges of mitigating climate change and enhancing energy security. It highlights the importance of considering investment drivers and the role of technological innovation in driving new investments.

2. Electricity Sector Sunk Capital: This study assesses how sunk capital in the electricity sector influences the pace of technological transitions and the policies that can alter current trends. It focuses on the decision between refurbishment and new build, considering the macroeconomic consequences of uncertain investments.

Conclusion

PROJECT TRANSITIONS aims to provide a comprehensive understanding of the investment challenges and opportunities in creating a sustainable and secure energy infrastructure. By engaging in detailed micro-scale analysis and leveraging advanced modeling techniques, the program seeks to inform effective policy responses and support informed investment decisions.