World Bank Warns of Energy Funding Crisis

More must be done to secure investment in the energy industry if future demand for supply and environmentally friendly power is to be met, speakers at a round table including the Director of Energy and Water at the World Bank told the World Energy Congress in Rome today.

But rising equipment and oil prices, and the risks associated with new technologies for renewables and other energy sources, are all holding investors back.

Warning that the industry is already well behind in investment stakes when it comes to R&D, the World Bank's Jamal Sighir says adding new carbon initiatives alone will add an additional US$30–40bn a year on to international requirements – a figure that today seems unlikely to be met.

"The power sector will be eating a lot of investment in the next few years – if we continue with the normal scenarios this will be about US$180m [a year]," Sighir says.

The roundtable's warning echoes that put out by global CEO's of the worlds six largest accounting and auditing organisations last year, which called on the industry to reach investment targets of US$20tr by 2030 for infrastructure and R&D in order to reach increased energy demands by this time.

The figure was distributed by financial firm KPMG at the conference again yesterday, which said little had been done in reaching a strategy to meet such high targets.

"What we have see in last three years is that the cost of equipment has gone up 30% for the generation of power. . . and the delivery time for mining materials [to the power industry] has gone from one month to more than two years over the last few years," Sighir says.

"This makes me nervous."

Team this with the rising oil price, which has already reduced the amount of money that energy companies have left over to invest in infrastructure and technology, and, according to Sighir, you have a new crisis at hand.

"It is not any more an energy issue, or environmental issue – it is a financial issue," Sighir warns.

He was not the only member of the round table to portray such a dim financial position for the energy industry of today.

PWC Global Energy Utilities and Mining Leader for the US Richard Paterson says winning over shareholders will be a tough battle for energy companies trying to comply with future demand and environmental constraints.

"It is key that private sector investors have a view of the investor horizon so they can repay their shareholders," Paterson says.

Political risk, however, and the period of long-term investment required for energy projects such as nuclear plants, as well as inflation which has already delayed a number of pipeline and LNG projects, all add to investor fears.

Paterson says better policies need to be put in place to induce investment and educate shareholders on the viability of new energy projects.

"I think one of the first policy things we need to address (as a global industry) is information and education of the public," Paterson says.

E.ON Energie COO Johannes Teyssen says on top of this, the industry must also battle issues in regards to tax and export expenses from nationalistic holdings of energy supplies, particularly at sea.

"We need to talk about joint investment strategy," Teyssen says.

"We are living in an interconnected world [but] a lot of areas, especially at sea, are still very nationalistic."

All members of the round table agreed that the upcoming G7 meeting will have to deal with the issues of how Wall Street and other stock markets will deal with this pressing issue and bring about more efficient technologies in the field, with new investment in upstream and downstream oil and gas and other energy markets.

By Penny Jones