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Governments need to be smarter with energy policy

Power generation spend needs to double in 20 years to meet surge in electricity demand

Spending on power generation will have to double over the next 20 years to keep up with soaring demand, posing a stark challenge for governments and investors to deliver low-carbon, secure and affordable energy.

“Annual investment in power generation will have to increase from $400 billion annually now to $800bn by 2030,” Guy Turner, chief economist at Bloomberg New Energy Finance, told delegates at WEC 2013.

To ensure the vast amounts of new investment materialise, Turner said, governments will have to strike the right balance between predictability and flexibility.

They have to provide stable, long-term direction for investors, but also ensure policies keep up with market and technological changes. “Governments need to be smarter about how they do energy policy.”

That will mean different things in different parts of the world. In the developing world, the primary task is providing stable and reliable energy supplies to swathes of the population that are not currently hooked up to the grid.

For most of the developing world, particularly in Asia, fossil fuels will play the largest role in meeting that demand, said Seethapathay Chander, director general of Regional and Sustainable Development Department at the Asia Development Bank. Hydrocarbons will make up more than 80% of the primary energy mix in 2035, with coal demand growing fastest, Chander said. Brazil stands out as something of an exception to the trend. Energy needs are as great in Brazil as anywhere.

Over the last year, even as Brazil’s economy has slowed to under 1% growth, electricity demand growth remained robust at around 4%, said José da Costa Carvalho Neto, the chief executive of state-owned Electrobras. “We need to add 6 gigawatts of power each year,” Carvalho said.

The country, Carvalho said, will look to its abundant hydro and wind resources to help meet that demand.

“Brazil will continue to be a big hydro producer. Nowadays we get 80% of electricity from hydro” he said, adding there is still a lot more to exploit. He also pointed to the countries vast onshore wind potential, saying that it could potentially have 300 gigawatts of production capacity. Gas demand is also expected to rise rapidly, and Brazil is building capacity to import more liquefied natural gas.

Funding this development will be a challenge, with roles for both private and state-backed investors. Carvalho pointed to the increasing amount of investment from international energy developers that have come to Brazil after the country’s energy reforms and the launching of a new auctioning process.

In Asia, there is plenty of surplus cash available for investment in the energy sector, said Chander. Much of that cash, though, is invested in Europe and the US, instead of in Asia.

The challenge for both the region’s governments and industry, said Chanders, is winning back the confidence of Asian investors and convincing them to keep more of their cash nearer to home.

State-backed banks such as the China Development Bank, the Asian Development Bank and Brazil’s BNDES will shoulder much of the burden. These banks are generally more willing to take on the political and market risks that scare off more cautious institutional investors from the West.

BNDES, for instance, has been a major driving force behind energy development in Brazil, funding wind, gas, hydro and other projects. BNDES is the world’s third largest investor in renewable energy, Turner said.

While the challenge in the developing world will be supplying energy to those that need it, the major changes in the developed world will come on the consumer side, argued Turner.

Smart technologies moving into consumers’ hands and being built into peoples’ homes and the energy grid will transform the way energy is consumed and provided over the next decade.

The traditional utilities will see their role in providing energy directly to consumers diminished while device makers and technology service providers such as Google and Microsoft will play a larger role.

Data servers already consume 2.5% of the world’s energy, said Turner, and that is only going to rise.

That will give companies such as Google and Microsoft, which have already invested billions of dollars in clean energy projects, a much larger investment role in the future.

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