WEC foresees $30 trillion in energy outlays

The world will need to spend up to $30 trillion during 1990-2020 to meet anticipated energy requirements, but raising finance may be tough. This is the view of London-based World Energy Council (WEC), which says this capital outlay will be required to meet a forecast 70% increase in global energy demand in the period. WEC said the spending requirement equates to 1.5 times the world's 1990 gross domestic product and includes $5 trillion that may be needed for environmental protection and

Feb. 2, 1998

3 min read

The world will need to spend up to $30 trillion during 1990-2020 to meet anticipated energy requirements, but raising finance may be tough.

This is the view of London-based World Energy Council (WEC), which says this capital outlay will be required to meet a forecast 70% increase in global energy demand in the period.

WEC said the spending requirement equates to 1.5 times the world's 1990 gross domestic product and includes $5 trillion that may be needed for environmental protection and emissions abatement.

The organization said its own studies show there is enough capital potentially available to meet this huge outlay. WEC set out in 1995 to examine global energy financing requirements over 25 years.

Concerns

"Hitherto," said WEC, "two major fears have been expressed. The first was that, given the considerable forecast increase in the demand for commercial energy, there could be an overall shortage of finance for the investment required, which could lead to local and regional energy shortages.

"The second was that, although a shortage of overall finance was unlikely, there could still be an increasing problem in mobilizing finance for energy investments in many developing countries, where 90% of future energy demand growth is expected to occur.

"The welcome conclusion of WEC's study is that global capital resources will be adequate to meet all potential investment finance needs, provided that certain conditions are met.

"Annual energy investment requirements are likely to continue to equate to 3-4% of world gross domestic product from 1990 to 2020, or 15-20% of global investment. Global economic growth will generate these resources."

Financing shortfall?

However, WEC warns of a growing concern that economies in transition and developing countries may not be able to mobilize all the financing they require for energy investment.

This could either be because of inadequate government resources or because governments are unable or unwilling to make fundamental changes required to attract private sector investment.

"With growing and competing demands for public finance," said WEC, "plus tightening of international aid budgets and the declining flow of international energy agency finance to state energy enterprises, the public sector in many developing countries will not be able to finance all the investment needed to satisfy their growing energy demand.

"Only private sector investment can fill the gap. To attract private sector capital, energy-and particularly electricity projects-will increasingly be in competition with projects in other infrastructure sectors and with other national and international investment opportunities.

"Depending on the risks involved, returns on capital invested in the energy sector will have to be as high, if not higher, than other opportunities if they are to attract private finance."

WEC said that unless the risk/reward ratio is competitive, energy projects will suffer low prioritization, delays, and cancellation: "It is estimated that more than 55% of memoranda of understanding for energy projects signed in developing countries since 1990 have failed to secure financing, and the energy projects involved have subsequently failed to materialize."