IEA (2019), World Energy Investment 2019, IEA, Paris https://www.iea.org/reports/world-energy-investment-2019, License: CC BY 4.0
Overview of power investment trends
Global power sector investment dipped by 1% to just over USD 775 billion in 2018, with lower capital spending on generation. Investment in electricity networks edged down, although investment in battery storage surged by 45% from a relatively low base.
Investment in coal-fired power declined by nearly 3% to its lowest level since 2004, mainly due to lower spending in China and India. Final investment decisions (FIDs) for new plants declined to their lowest level this century and retirements were at near record levels. Nevertheless, the global coal power fleet continued to grow, due to net additions in developing Asian countries (see below).
After rising to a decade high in 2012, gas-fired power spending slowed, notably in the Middle East and North Africa (MENA) region and in the United States, where a large pipeline of projects has been realised in recent years. Gas power spending in Europe remained near its lowest level this century.
Renewables-based power investment edged down by 1%, as net additions to capacity were flat and costs fell in some technologies, but spending was also supported by
plants under development. Despite a generally stable profile for overall investment, a dollar of renewables spending continues to buy more capacity than in the past. Adjusting the time series to 2018 cost levels shows a rising trend over time, with renewables investment activity up by 55% since 2010.
On a cost-adjusted basis, investment activity increases were strongest in solar PV and wind, benefitting from falling costs and higher deployment, particularly versus five years ago, though this trend paused in 2018. The difference in spending and cost-adjusted investment was less evident in hydropower, where additions have slowed and a greater part of development has been in higher cost areas.
Solar PV spending fell by around 4%, while wind investment remained flat. The dip in solar PV was a contributor to the downward movement in renewables investment, largely due to policy changes in China, where the government is seeking to promote more cost- effective and system-friendly investment. Outside of China, renewables spending in the rest of the world grew by almost 5%.
In India, solar PV spending exceeded that for coal power for the first time, supported by government auctions. In the United States, solar PV and wind investment rose almost 15%, supported by corporate procurement, which comprised nearly a quarter of spending (see Financing and funding trends). Offshore plants were one-fifth of wind spending - FIDs in Europe rose to the second- highest level ever.
Nuclear power investment edged up as new grid- connected plants in 2018 grew threefold, 80% of them in China. Construction starts rose to 6 GW none of which were in China, but were much lower than capacity additions. Spending on the long-term operation of existing plants was 13% of the total.
Electricity grids spending dipped by 1% from less investment in distribution, although that for transmission continued to rise. US investment grew strongly while China’s dipped. Grid investment in both India and Europe rose by around 5%.
Investment in battery storage rose by 45% to a record of over USD 4 billion in 2018, driven by strong increases in both grid-scale and behind-the-meter batteries, which were the majority of installations.
Overall, low-carbon power generation (renewables and nuclear) comprised nearly three-quarters of generation spending. The share of low-carbon generation plus networks and storage, key enablers for power system flexibility, reached nearly 85% total power spending.
In 2018, upper-middle-income countries – with over 40% of the world population (including China and much of Southeast Asia and Latin America) – comprised nearly 45% of power investment, a share that has been stable over the past five years. Lower-income markets – also 40% of the population – saw their share rise to over 17%, largely due to India. Power investment has fallen slightly in high-income countries since 2016.
Asia has accounted for nearly three-quarters of the growth in power sector investment over the last decade, with China alone accounting for nearly half. Over 2015- 18, however, the United States registered the largest growth in power sector investment, mainly due to higher spending on the grid.
Although China continues to account for more than a quarter of the total, its power investment declined by 7% in 2018, the first fall this century, largely due to a continued reduction in spending on coal power, but also from lower solar PV and grid investment. The fastest growing power investment markets in the world, on a percentage basis, were Australia, Mexico, India, and the United States.
In the United States, power investment rose by 7% in 2018. Gas-power investment fell from near five-year highs while renewables (two-thirds of generation spending) jumped 16%, with deployment driven by falling costs in solar PV and wind, the availability of federal tax credits, state portfolio standards, and corporate procurement. Grid investment increased by 8% in support of reliability and resilience goals.
Power investment in the European Union declined by 4% in 2018, and Europe is investing almost half than it did in 2010. Its share of global power investment has halved to around 15%, though this partly stems from spending on relatively higher-cost renewables in the early part of the decade.
Renewables in Europe accounted for three-quarters of generation investment in 2018, even as spending fell to its lowest level since 2007. Investment in wind power projects in Europe declined but remained the largest source, and offshore wind projects accounted for around half of wind investment. In Europe, there is increased interest from industry in financial risk management strategies for renewables, amid changing policies and increasing roles for sources of remuneration outside of government schemes (see section on Financing and funding trends).
In India, total renewable power investment topped fossil fuel-based power for the third year in a row, supported by tendering and uncertain financial prospects for new coal power. Grid investment rose by 4%, with one-fifth increase in transmission, but spending in distribution remained flat.
The MENA region and Southeast Asia were the two main areas where investment in fossil fuel power was higher than renewables. But the growth rates differ starkly – in the past five years, MENA power sector investment has risen by nearly 40%, while in Southeast Asia it has remained around the same level, in part due to risks related to grid development, financial performance of incumbent utilities and the poor bankability of renewables projects in markets such as Indonesia and Vietnam.
In sub-Saharan Africa, power investment grew 8% in 2018, though has grown over 80% since 2010. This growth has all come from generation, over 65% of which was in renewables. Spending on grids – critical for electrifying a large part of the population without access and connecting new generation – has stagnated. In many countries, investment is hampered by weak regulatory frameworks, lengthy project timelines, persistent financial strains on utilities and limited public finance.
Implications of power investment
Power investment was almost 15% below the average annual needs for 2025-30 as projected in the NPS but over 35% less than the annual needs in the SDS. The 2018 data suggest a continued need for capital reallocation to meet energy security and sustainability goals, not only to bring in more low-carbon power but also to ensure that renewables-rich systems can operate with sufficient flexibility.
In 2018, coal power investment, at under USD 60 billion, decreased 3% compared to previous year. This was still higher than the levels projected in IEA scenarios, with the largest differences found in Asia, particularly in China, India, and Southeast Asia.
Spending on gas-fired generation in 2018 was also higher than projected in the scenarios, but by less than coal, a reflection of the flexibility value of gas in the power system. The largest difference was in the United States. In Europe, where investment in thermal capacity of all types has slumped, gas power investment would need to rise (NPS) or be sustained (SDS).
Investment in nuclear power was only 3% less than the needs under the NPS but nearly 40% less than spending required in the SDS, with the largest gaps in Europe, the United States, and China.
Renewables spending in 2018 was lower than projections under both scenarios – nearly 15% compared to the NPS but 50% compared with the SDS. While the largest gap is seen in wind, more renewable spending would be needed across all technologies and geographies in the SDS, despite falling costs.
Investment in grids and battery storage was also lower than in both scenarios, by around 30%. Gaps were most acute in areas with large electrification needs (e.g. India and sub-Saharan Africa), where utilities challenge to recover their fixed costs and set the adequate cost reflective tariffs.
Costs and project development
A growing share of power generation investment has been in projects built in three years or less and average construction times for new capacity have fallen. This trend is helped by policy support for renewables and (in some countries) for flexibility, improvements in project development and economics for some technologies, as well as industry competition and a greater focus on risk management.
This shift is consistent with recent progress in capital cost reductions, which have mostly occurred in variable renewables (and batteries), benefitting from technology progress.
It is important to remember that cost curves for all technologies depend strongly on the location of deployment and annual pricing dynamics in equipment markets.
Capital costs for solar PV continued to decline in 2018 and are down three-quarters since 2010. Capital costs for onshore wind are down 20% since 2010. In offshore wind, dramatic capital cost declines have not yet appeared in operating projects, but expectations of lower costs ahead, combined with better financing terms (IEA, 2018a) and increased capacity factors - with the use of more advanced turbines and sites moving further out to sea - have driven auction prices lower (IEA, 2018b).
Developers have generally improved construction times for solar PV and wind. This partly reflects deployment in areas with faster timelines but also technology and project design improvements and the increased role of competitive bidding in policies. Still, barriers before and after construction – e.g. permitting, land acquisition, and the timely signing of Power Purchase Agreements (PPAs) and grid connections – persist in some markets.
The average costs for thermal power have changed little since 2010, but some new trends are emerging.
Gas power (CCGTs) is one area that has benefitted from recent improvements in project development and equipment pricing. These improvements have stemmed from intense competition among suppliers and engineering, procurement, and construction (EPC) companies in the face of a slowing global market combined with the increased modularity and standardisation of project designs.
Costs and construction times have generally increased for coal power, reflecting in part larger plant sizes and more complex project designs. A growing share of coal power investment is in high-efficiency plants with advanced pollution control systems, responding to local concerns over air quality but locking in potentially large future emissions of CO2.
However, with the slowing of China’s domestic coal power additions, industry sources have reported that increased competition from Chinese EPC companies seeking business abroad is putting some downward pressure on pricing for new coal power plant costs in places like Southeast Asia.
For hydropower, where costs are location specific, the share of deployment in China has decreased over the past decade, raising the global weighted average. Within different regions, costs have changed little. Construction times for new capacity have risen, reflecting generally larger plant sizes but also land and water management requirements that can increase project complexity.
FID trends for power generation
FIDs (i.e. decisions to start construction for the first time) for the main sources of large-scale dispatchable power – coal, gas, nuclear, and hydropower – fell by a quarter in 2018 to 90 GW, 55% lower than in 2010.
In 2018, coal-fired power FIDs declined by 30% to 22 GW, their lowest level this century. Most FIDs are now for high-efficiency plants, with inefficient subcritical plants comprising only 10%. The largest fall in FIDs was in China, but levels in Southeast Asia were their lowest level in 14 years. India was the largest market, now largely oriented towards supercritical technology, but levels were 80% lower than in 2010.
In China, the central government has made efforts in recent years to restrict permitting and plant construction, amid signs of overcapacity and local air pollution concerns. There is some uncertainty over the capacity under construction in China, which could affect investment levels ahead – reports suggest some plant sites, where activity was previously suspended, may be resuming construction.
FIDs for gas-fired power also dropped for the third consecutive year, by nearly 15%, though remained twice as high as those for coal. The largest declines in gas FIDs were in the MENA region (-50%), where there is excess capacity in the power system, and the United States (-30%). In contrast, they grew in China by 70%, and for the first time more gas-fired power capacity was sanctioned than that of coal.
FIDs for the largest sources of low-carbon dispatchable generation – hydropower and nuclear– were 40% lower than in 2017. Construction starts for new nuclear power plants rose by 50% in 2018, none of which were in China, but were lower than grid connections. Pumped hydro accounted for the majority of hydro projects taking FID in 2018 for the first time.
Networks and battery storage
Investment in electricity grids dipped by 1% in 2018; China and the United States were nearly half of spending.
Global spending on transmission grids, around 30% of network investment, has risen steadily during the last five years, supported by the connection of more generation, the system integration of variable renewables, and large-scale interconnection projects, though in some areas, constraints associated with permitting planning and project development remain investment challenges.
Grid investment in the United States increased by 8%, with around 60% of spending in the distribution grid. Regulators continue to emphasise grid resilience and reliability. The potential downsides of underspending were in the spotlight in California with wildfires related to a lack of maintenance and replacement of distribution assets at the end of their lifetime.
Spending in the Europe Union rose by 8%, largely due to investment in transmission. In their long-term planning, the European Network of Transmission System Operators identified USD 10 billion of annual transmission spending needs through 2030, implying a notable boost from current spending levels.
India’s grid spending grew to over USD 20 billion, led by transmission, while distribution moderated. The Central Electricity Authority recently identified needs for USD 40 billion of transmission spending in the next three years, 60% higher than current levels.
Investment in digital grid technologies rose by almost 10% to USD 35 billion. Most of this was in smart meters and grid automation equipment, but spending on EV charging stations rose by 60% to over USD 3 billion, with reports of utilities, automotive companies and oil companies moving to invest more in the space. Spending on traditional equipment remained the largest part of investment at nearly 45%.
Investment in battery storage rose by 45% to a record of over USD 4 billion in 2018. This was driven by strong increases in both grid-scale and behind-the-meter batteries, which were the majority of installations.
Capital spending on grid-scale battery storage increased by 30% compared with 2017, totalling more than 1.2 GW installed in 2018 . Deployment in Europe (particularly the United Kingdom) and the United States comprised half of 2018 investment, supported by capacity mechanisms and contracts. China was the region with the largest growth, as it registered a fourfold increase compared to 2017.
Behind-the-meter investment jumped by 60% in 2018, almost reaching 1.9 GW of capacity added last year. Korea led 2018 capacity additions, supported by tariff designs that aimed to shift peak demand in the industrial and commercial sectors – charging during low-load hours and discharging during peak hours benefitted from price discounts and premiums compared with the prevailing retail prices.
Average costs for commissioned grid-scale battery projects declined in 2018 to under USD 400 per kilowatt hour (kWh), with an average duration of 4 hours. Behind- the-meter projects saw more significant declines to near USD 800/kWh. For both types, 35-40% of the cost was associated with the battery pack, suggesting a significant role for other factors (e.g. mounting equipment, cabling, and labour) in overall costs.
While pumped-hydro projects remained the largest part of new electricity storage, lithium batteries continued to be by far the largest part of battery deployment. In parallel, grid and ancillary services remained the main application of these deployments, but there has been rising investment in batteries directly integrated with variable renewables plants (see Financing and funding trends).