As a result of major transformations in the global energy system that take place over the next decades, renewables and natural gas are the big winners in the race to meet energy demand growth until 2040, according to the latest edition of the World Energy Outlook, the International Energy Agency’s flagship publication.
A detailed analysis of the pledges made for the Paris Agreement on climate change finds that the era of fossil fuels appears far from over and underscores the challenge of reaching more ambitious climate goals. Still, government policies, as well as cost reductions across the energy sector, enable a doubling of both renewables – subject of a special focus in this year’s Outlook – and of improvements in energy efficiency over the next 25 years. Natural gas continues to expand its role while the shares of coal and oil fall back.
“We see clear winners for the next 25 years – natural gas but especially wind and solar – replacing the champion of the previous 25 years, coal,” said Dr Fatih Birol, the IEA’s executive director. “But there is no single story about the future of global energy: in practice, government policies will determine where we go from here.”
World power generation will increase from 23,809 TWh in 2014 to 34,092 TWh in 2040, according to the IEA’s 450 Scenario. In this scenario, global nuclear generating capacity increases from 398 GWe in 2014 to 820 GWe in 2040. Nuclear output would grow from 2535 TWh to 6101 TWh over this period, when it will account for 18% of total electricity production.
“In the case of nuclear, even though one-sixth of the global nuclear fleet is retired in the next decade (80% of this in OECD countries), overall prospects are buoyed by large new build programs in a select group of countries led by China, Russia and India,” the IEA said.
In the longer-term, investment in oil and gas remain essential to meet demand and replace declining production, but the growth in renewables and energy efficiency lessens the call on oil and gas imports in many countries. Increased LNG shipments also change how gas security is perceived. At the same time, the variable nature of renewables in power generation, especially wind and solar, entails a new focus on electricity security.
Global oil demand continues to grow until 2040, mostly because of the lack of easy alternatives to oil in road freight, aviation and petrochemicals, according to WEO-2016. However, oil demand from passenger cars declines even as the number of vehicles doubles in the next quarter century, thanks mainly to improvements in efficiency, but also biofuels and rising ownership of electric cars.
Coal consumption barely grows in the next 25 years, as demand in China starts to fall back thanks to efforts to fight air pollution and diversify the fuel mix. The gas market is also changing, with the share of LNG overtaking pipelines and growing to more than half of the global long-distance gas trade, up from a quarter in 2000. In an already well-supplied market, new LNG from Australia, the United States and elsewhere triggers a shift to more competitive markets and changes in contractual terms and pricing.
The Paris Agreement, which entered into force on 4 November, is a major step forward in the fight against global warming. But meeting more ambitious climate goals will be extremely challenging and require a step change in the pace of decarbonization and efficiency. Implementing current international pledges will only slow down the projected rise in energy-related carbon emissions from an average of 650 million tonnes per year since 2000 to around 150 million tonnes per year in 2040.
While this is a significant achievement, it is far from enough to avoid the worst impact of climate change as it would only limit the rise in average global temperatures to 2.7°C by 2100. The path to 2°C is tough, but it can be achieved if policies to accelerate further low carbon technologies and energy efficiency are put in place across all sectors.
It would require that carbon emissions peak in the next few years and that the global economy becomes carbon neutral by the end of the century. For example, in the WEO-2016 2°C scenario, the number of electric cars would need to exceed 700 million by 2040, and displace more than 6 million barrels a day of oil demand. Ambitions to further limit temperature gains, beyond 2°C, would require even bigger efforts.
In the main scenario, a 30% rise in global energy demand to 2040 means an increase in consumption for all modern fuels, but the global aggregates mask a multitude of diverse trends and significant switching between fuels. Moreover, hundreds of millions of people are still left in 2040 without basic energy services. Globally, renewable energy – the subject of an in-depth focus in WEO-2016 – sees by far the fastest growth. Natural gas fares best among the fossil fuels, with consumption rising by 50%. Growth in oil demand slows over the projection period, but tops 103 million barrels per day (mb/d) by 2040.
A cumulative $44 trillion in investment is needed in global energy supply in our main scenario, 60% of which goes to oil, gas and coal extraction and supply, including power plants using these fuels, and nearly 20% to renewable energies. An extra $23 trillion is required for improvements in energy efficiency. Compared with the period 2000-2015, when close to 70% of total supply investment went to fossil fuels, this represents a significant reallocation of capital, especially given the expectation of continued cost declines for key renewable energy technologies.
Countries are generally on track to achieve, and even exceed in some instances, many of the targets set in their Paris Agreement pledges; this is sufficient to slow the projected rise in global energy-related CO2 emissions, but not nearly enough to limit warming to less than 2 °C. China’s transition to an economic model oriented towards domestic consumption and services plays a critical role in shaping global trends. The build-up of China’s infrastructure in recent decades relied heavily on energy-intensive industrial sectors, notably steel and cement. However, energy demand from these sectors is now past its high point, with the projected decline to 2040 bringing down China’s industrial coal use in its wake. Almost all the growth in China’s power generation comes from sources other than coal, whose share in the power mix falls from almost three-quarters today to less than 45% in 2040. China’s energy-related CO2 emissions plateau, only slightly above current levels.
In India, coal’s share in the power mix drops from 75% to 55% over the period to 2040, a major shift in a country that sees electricity demand more than triple (compared with a “mere” 85% rise in China).
Among the main developed economies, the United States, the European Union and Japan look to be broadly on track to meet their climate pledges, although delivering on further improvements in energy efficiency will be vital. With a continued focus on full and timely implementation, the pledges are sufficient in aggregate to limit the increase in global CO2 emissions to an annual average of 160 million tonnes. This is a marked reduction compared with the average annual rise of 650 million tonnes seen since 2000. But continued growth in energy-related CO2 emissions, to 36 gigatonnes in 2040, self-evidently means that these pledges do not deliver the Paris Agreement’s goal to reach a peak in emissions as soon as possible.
Electricity takes an ever-larger share of the growth in final energy consumption: from just over one-quarter over the last 25 years, electricity accounts for almost 40% of additional consumption to 2040 in our main scenario and for two-thirds in the 450 Scenario. NonOECD countries account for more than 85% of the increase in electricity use in both scenarios, but this is also one of the few energy carriers that gains ground within the OECD. Although a small factor in total power demand, the projected rise of electricity consumption in road transport is emblematic of the broader trend, as electric cars gain consumer appeal, more models appear on the market and the cost gap with conventional vehicles continues to narrow. The worldwide stock of electric cars reached 1.3 million in 2015, a near-doubling on 2014 levels. In our main scenario, this figure rises to more than 30 million by 2025 and exceeds 150 million in 2040, reducing 2040 oil demand by around 1.3 mb/d. Although battery costs continue to fall, supportive policies – which are far from universal for the moment – are still critical to encourage more consumers to choose electric over conventional vehicles. If these policies, including tighter fuel-economy and emissions regulations as well as financial incentives, become stronger and more widespread, as they do in the 450 Scenario, the effect is to have some 715 million electric cars on the road by 2040, displacing 6 mb/d of oil demand.
The electricity sector is the focus of many Paris pledges: nearly 60% of all new power generation capacity to 2040 in our main scenario comes from renewables and, by 2040, the majority of renewables-based generation is competitive without any subsidies. Rapid deployment brings lower costs: solar PV is expected to see its average cost cut by a further 40-70% by 2040 and onshore wind by an additional 10-25%. Subsidies per unit of new solar PV in China drop by three-quarters by 2025 and solar projects in India are competitive without any support well before 2030. Subsidies to renewables are around $150 billion today, some 80% of which are directed to the power sector, 18% to transport and around 1% to heat. With declining costs and an anticipated rise in end-user electricity prices, by the 2030s global subsidies to renewables are on a declining trend from a peak of $240 billion. Renewables also gain ground in providing heat, the largest component of global energy service demand, meeting half of the growth to 2040. This is mainly in the form of bioenergy for industrial heat in emerging economies in Asia; and solar thermal applications for water heating, already an established choice in many countries, including China, South Africa, Israel and Turkey. In the 450 Scenario, nearly 60% of the power generated in 2040 is projected to come from renewables, almost half of this from wind and solar PV.
The links between energy and water use are set to intensify. The energy sector is a major water user, mainly for power generation and biofuels but also for fossil fuel production, requirements that are set to grow to 2040. The water sector is a major energy user (quantified for the first time in WEO-2016) for water supply and treatment, and energy consumption for water supply more than doubles to 2040, with the largest increase coming for desalination. Managing these energy-water linkages is pivotal to the prospects for successful realisation of a range of development and climate goals.
SOURCES – IEA World Energy Outlook 2016