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The papers in these workshops represent the personal views of the individual authors and do not necessarily represent the views of their companies, organisations or the IEA.

IEA Brainstorming Session: Investment Challenges in the Energy Sector

Location and date(s) of workshop:	IEA, Paris: 28 April 2003

Organiser(s):	IEA

Contact(s):

Background:	On Monday, 28 April 2003, The International Energy Agency held a high-level Brainstorming Session in Paris to examine investment challenges in the energy sector. The aim of the event was to gather experts from around the world, each with different backgrounds and experience, in order to examine the challenges we face in ensuring global energy supplies through to 2030.

Links to relevant documents:

Proceedings:	In total, the Brainstorming Session brought together 40 energy experts from industry, academia and government from 15 different countries and was observed by an audience of approximately 150. The results of the brainstorming were reported later that day at the IEA Ministerial-Level Meeting of the Governing Board, the biennial meeting of the Ministers from the 26 IEA Member countries. Many of the issues raised during the session will be examined in greater detail in the IEA's World Energy Investment Outlook, which will be released in November 2003. This latest publication in the World Energy Outlook Series will quantify the amount of investment required in the energy sector through 2030 and examine the obstacles that will need to be overcome if this investment is to occur in a timely fashion. The Brainstorming Session consisted of two segments in which two distinct aspects of energy investment were debated. The first segment addressed "OECD Infrastructure: What Are the Financing Requirements?" To set the scene for this session presentations were made by Dr Adnan Shihab-Eldin, Director of Research, OPEC, and by Mr Euan Baird, previously Chairman of Schlumberger Limited, and currently Chairman of Rolls Royce. The second segment concentrated on "Meeting Growing Energy Requirements in Developing Countries." This session commenced with presentations from Dr Rajendra K Pachauri, Director-General of the Energy Research Institute and Mr. Stephan Karekezi, Director, African Energy Policy Research Network. As is the nature of brainstorming meetings, the emphasis was on participants to express their personal views on a broad set of issues rather than to reach agreement on specific priorities. A selection of the views that were expressed in each session is listed below. Views Expressed in Session 1: "OECD Infrastructure: What Are the Financing Requirements?" Upstream investment in oil and gas is typically profitable so can be easily financed, usually internally through company cashflow. Restrictions on access to upstream investment opportunities in some OPEC countries is a continuing issue for foreign energy companies. There is concern that it will be difficult to finance large-scale gas transmission projects in newly liberalised markets in the absence of long-term contracts. Policy-makers need to keep an open mind on all possible policy options. As energy projects tend to have long lifetimes they require a stable and predictable regulatory framework; frequent regulatory changes discourage investment. We are facing a fossil-fuel future and must therefore develop technologies such as carbon- sequestration and hydrogen fuel-cells to meet carbon restrictions. Measures required to meet short-term energy policy goals are not always consistent with those required to meet longer-term objectives. Policy makers and consumers should be educated about the consequences of liberalised markets, their influence on prices and who has to pay. Security of supply of gas could become as important an issue as security of supply of oil. Energy security issues may warrant heavy-handed support for a more diverse fuel supply. Governments should clearly separate responsibilities for economic regulation and policy formulation. Uncertainty over environmental policies and their implementation can raise problems for energy investment decisions-makers. Deregulating energy markets can result in uncertainty that may stall potential new entrants. Views Expressed in Session II: "Meeting Growing Energy Requirements in Developing Countries" Weak or non-existent domestic capital markets in developing countries hinder investment, and often lead to the necessity of international financing with much shorter terms than asset lives. Small-scale financing/micro credit has been successful in stimulating local capital markets. An emerging problem in developing countries is the growing funding gap for investment. This has arisen as diminishing FDI has not been fully offset by funding from domestic savings (which is some cases is channelled to markets in developed countries) and because of reduced World Bank involvement, particularly in electricity projects. Developed country reform models should not be exported without modification to developing countries. Examples of where reform programmes have been most successful are where they have moved slowly and have been modified to incorporate local sensitivities and to overcome institutional limitations. To maximise the benefit for developing countries an integrated approach to investment is preferable i.e. by considering together investments in energy, water, communications, health, etc. This highlights the role international organisations can play in co-ordinating programmes. For projects to be sustainable and successful it is necessary to have political will, clear property rights, and the ability to set and recover a fair tariff. This requires governments to develop and implement comprehensive laws and regulations at both the national and local levels. Geo-political concerns will not diminish as developing countries will be relied upon for a growing share of the world's low cost energy supplies. Independent power producers have achieved some success in developing countries in attracting foreign financing, however this has not been matched in the transmission and distribution sectors. Access to electricity will continue to be a key issue for the world's poor. No prosperity without reliable energy. A clear understanding how consumers have to pay for energy is necessary for financing.