World Energy Outlook 2006

Investment in Energy-Supply Infrastructure and
End-Use Equipment
Overview
The reductions in energy demand, energy imports and energy-related carbondioxide
emissions that are brought about by the policies and measures analysed
in the Alternative Policy Scenario require a profound shift in energy investment
patterns. Consumers – households and firms – invest more to purchase energyefficient
equipment. Energy suppliers – electricity, oil, gas and coal producers
– invest less in new energy-production and transport infrastructure, since
demand is reduced by the introduction of new policies compared with the
Reference Scenario. Overall, over 2005-2030, the investment required by
the energy sector – ranging from end-use appliances to production and
distribution of energy – is $560 billion less (in year-2005 dollars) in the
Alternative Policy Scenario than in the Reference Scenario (Figure 8.1). This
capital would be available to be deployed in other sectors of the economy.
This chapter discusses the economics of the Alternative Policy Scenario,
providing analyses of:
� The net change in investment by energy suppliers and energy consumers.
� The net change in energy import bills and export revenues.
� How the cost to consumers of investing in more energy-efficient
equipment compares with the savings they make through lower
expenditure on energy bills.
Demand-side investments are consumers’ outlays for the purchase of durable
goods, that is, end-use equipment. Increases in demand-side investments are
thus increases in cash outlays on durable goods. 1 Box 8.1: Comparing Costs and Savings
All investments and
consumers’ savings in energy bills are expressed in year-2005 dollars.
Consumers’ outlays are attributed to the year in which the equipment is
purchased, but their savings are spread over a number of years. Strictly
speaking, these savings should be discounted to allow for the higher value of
benefits which arise earlier. But there is no generally accepted discount rate,
at the global level, to reflect this “time preference” of society. Its value varies
from sector to sector, and between different types of purchase.
The offsetting savings in energy costs quoted here are, accordingly, not
discounted. Our analysis suggests that the undiscounted cumulative savings
in energy bills are more than three times the additional demand-side
investments. This implies that even using a relatively high discount rate, i. e.
20%, consumers, at least on a collective basis, are better off in the Alternative
Policy Scenario.
1. Transaction costs and changes in non-energy operating costs in the Alternative Policy Scenario are not
included.
194 World Energy Outlook 2006 - THE ALTERNATIVE POLICY SCENARIO
© OECD/IEA, 2007