Kelvin Ross, Deputy Editor
|Nuclear generation is one of the sectors of power generation where the IEA’s forecasts identify risks Source: Vattenfall|
In its 2011 World Energy Outlook, the International Energy Agency forecasts that non-OECD countries will drive growth in almost all sectors of the power market in the next 25 years. However, it has warnings for the industry on nuclear and renewables. PEi looks at the Outlook conclusions in detail.
Forecasting the future is a tricky business in any industry, but for the global power sector it is littered with pitfalls.
Just look at the past year: a natural disaster in Japan causes a nuclear catastrophe that sends shock waves around the world and prompts the biggest and most influential government in Europe to pull the plug on atomic energy. Such a scenario would have been far down any potential risk analysis list, yet it happened and the knock-on effect is being felt throughout the industry.
But projections of sector trends are vital not just for the industry, but for those who invest in it. So the annual publication of the International Energy Agency’s book World Energy Outlook (WEO) is a crucial date for professionals within the power sector.
Published last month, the WEO makes interesting reading. Yes, there are many trends that you would expect to see, but there are some surprising conclusions too, as well as a couple of key caveats in relation to nuclear and renewables.
In this year’s WEO, the IEA looks at the global power market from now to 2035 from the perspective of three scenarios. The New Policies Scenario is the core projection and, as its name implies, incorporates the energy policy commitments of countries around the world. The Current Policies Scenario looks at the energy world if those policies and measures currently in place were to stay unchanged. The 450 Scenario uses as its model an energy roadmap to limit the increase in average global temperature to 2 à‚°C, which climate experts see as requiring the long-term concentration of greenhouse gases in the atmosphere to be limited to about 450 parts per million of carbon dioxide equivalent.
We will focus mainly on the New Policies Scenario, as it is the one the IEA sees as most likely to come to fruition. The recurring theme from all energy sectors in the WEO is that countries outside the OECD ” particularly China, India and Russia ” will drive capacity demand and trends in the next 20 years.
“Decisions will be made in Beijing, New Delhi and Moscow that will have an impact on all of us, even the OECD countries,” said the IEA’s chief economist Fatih Birol. This applies to all sectors from renewables and nuclear to gas and coal, where India “will be the new China by 2020 in terms of coal imports”.
“We are entering a golden age for gas,” said Birol at the launch of the WEO.
Demand for natural gas rises in all three WEO scenarios ” the only fossil fuel to do so. In the New Policies Scenario, global consumption catches up with coal, with economic growth and energy policies in non-OECD countries being the key driver behind this ” China’s domestic demand will rise to more than 500 bcm by 2035 from 110 bcm in 2010. “The world’s remaining resources of natural gas can comfortably meet the projections of global demand to 2035 and well beyond,” states the WEO.
|Share of world electricity generation by fuel under the New Policies Scenario Source: IEA|
Unconventional gas output rises from 13 per cent in 2009 to above 20 per cent in 2035. However, the pace of this development varies considerably by region. While the US is way ahead of the pack in shale gas exploration, the rest of the world is still grappling with the environmental challenges presented by the drilling process.
The WEO states that by 2035, Russia will be the world’s largest gas producer, China will be the gas powerhouse of Asia, and output from the Middle East and Africa will also rapidly increase. However, Europe will remain the largest import market, bringing in 540 bcm in 2035.
The shadow of Fukushima hangs over the nuclear forecast. Following the disaster at the Japanese plant in March, the IEA states that financing for new reactors will become more difficult to secure, leading to the cost of new projects rising by as much as 10 per cent. Yet growth in nuclear will continue, with both non-OECD countries and many OECD countries pressing ahead with plans for new plants.
|Gas fired electricity generation in specific countries and regions under the New Policies Scenario Source: IEA|
Globally, capacity is projected to rise from 393 GW in 2009 to 630 GW in 2035, with generation increasing by almost 2000 TWh over that period, more than the nuclear output in North America and OECD Europe combined in 2010.
But the IEA also considered what would happen if a significant number of countries followed Germany, Italy and Switzerland in withdrawing from nuclear power. If this were to happen, said Birol, “the implications are alarming”. “Coal and natural gas would be the major winners and this would be bad for economics, bad for energy security and bad for climate change,” he said.
A significant fall in nuclear generation would see energy import bills rise, as higher coal and natural gas imports would drive up international energy prices. Taking nuclear power off the global grid would also seriously affect countries with limited indigenous resources that rely relatively heavily on atomic energy, such as Belgium, France, Japan and Korea. Similarly, such a slowdown in the growth of nuclear power would make it more challenging for China and India to satisfy their rapidly growing electricity demand.
IEA executive director Maria van der Hoeven said: “If you phase out nuclear, you have less eggs in your basket when it comes to energy security.
“If you decide to phase out nuclear you have to ask: how are we going to bridge the gap? What does it cost? And what are we going to do about security?”
As you might expect, renewable energy growth is strong in all three scenarios. Under the New Policies Scenario, government policies ” in particular subsidies ” drive global renewables-based electricity generation to triple, rising from 3 900 TWh in 2009 to 11 100 TWh in 2035.
Most of this growth comes from four sources: wind and hydro account for about a third each, biomass for about one sixth, and solar for one tenth. In the New Policies Scenario, over three quarters of the growth in installed wind capacity and 70 per cent of the growth in solar capacity occurs in the US, European Union, China and India.
|Solar PV and wind power capacity by region under the New Policy Scenario Source: IEA|
Rapid capacity expansion in China has already seen onshore wind electricity generation rise from just 2 TWh in 2005 to 27 TWh by 2009, and it is projected to reach almost 590 TWh by 2035, making China the world’s leading onshore wind power producer.
In the EU, installed onshore wind capacity generation rises more than three-fold, from 133 TWh in 2009 to 480 TWh in 2035, and more than five-fold in the US, from 74 TWh to 390 TWh. Growth in China, the EU and US will also drive growth in offshore wind. By 2035, it will account for a quarter of total wind power generation, increasing from less than 1 TWh in 2009 to 670 TWh in 2035.
Solar powered generation also rises substantially, from 20 TWh in 2009 to 740 TWh in 2035, growing at an average rate of 15 per cent a year. Currently, the EU accounts for three quarters of global solar generation, and while this pace will be maintained, it will be overtaken by China and India.
Non-OECD countries will also lead a boom in hydropower. Some 85 per cent of new capacity will come from these countries, and 60 per cent of that percentage will be accounted for by China, India and Brazil.
Electricity from biomass plants is predicted to grow at an average annual rate of 6.5 per cent, which results in a five-fold rise in output, from 288 TWh in 2009 to 1500 TWh in 2035. Again, the bulk of the growth comes from non-OECD countries, with the combined growth in demand in China and India more than one third of the global total.
But a key caveat to this growth in renewables ” and in particular offshore wind ” is mentioned. The IEA forecasts that renewable energy subsidies will quadruple from $64 billion last year to $250 billion by 2035. Yet it added that some of these subsidies “cannot be taken for granted in this age of fiscal austerity”.
Chief economist Birol said: “Governments are giving a second look at renewable energy subsidies. If these are cut once, it might be very difficult for the renewable energy industry to come back to life later.”
Global electricity output from coal fired plants increases from just over 8100 TWh in 2009 to around 12 000 TWh by 2035 in the New Policies Scenario.
In non-OECD countries, coal fired generation will double, with the biggest growth being in China. In India, coal use is projected to almost triple over the forecast period, so the country eventually overtakes the US as the world’s second-largest consumer. Meanwhile, Europe’s coal use will fall due to the impact of the European Union Emissions Trading System on the competitiveness of coal relative to other feedstocks.
In the US, where only a shadow carbon price is assumed in the New Policies Scenario, the use of coal remains comparatively stable, declining by only 3 per cent between 2009 and 2035.
The mix of coal fired generation technologies changes in the next 15 years, as older plants are retired and replaced by more efficient facilities, including ultra-supercritical designs and integrated gasification combined-cycle (IGCC) plants. As a result, the average global thermal efficiency of coal plants increases by four percentage points, from 38 per cent in 2009 to 42 per cent in 2035.
Electricity supply and demand
Demand for electricity grows steadily in each of the three scenarios. Following the economic recession, demand dropped by 0.7 per cent in 2009 ” the first fall since IEA records began in the early 1970s ” but it recovered strongly in 2010, growing by 6 per cent.
In the New Policies Scenario, global electricity demand is projected to grow by more than four fifths between 2009 and 2035, from 17 200 TWh to more than 31 700 TWh, at an annual growth rate of 2.4 per cent.
As with natural gas, much of the growth ” about 80 per cent ” occurs in countries outside the OECD, driven by their faster economic and population growth, expanding access to electricity, and rising per-capita consumption. Nearly two thirds of this 80 per cent growth occurs in China and India. Although non-OECD annual per-capita electricity consumption increases from 1450 kWh in 2009 to 2750 kWh in 2035, it remains far below the OECD annual average of about 7500 kWh in 2009.
On the supply side, global electricity generation is projected to increase by 2.3 per year in the New Policies Scenario, from 20 000 TWh in 2009 to more than 36 000 TWh in 2035.
In the New Policies Scenario, coal remains the largest source of electricity generation globally throughout the WEO period, with coal generated output growing by 48 per cent between 2009 and 2035. Nonetheless, its share of generation falls from 41 per cent to 33 per cent.
A marked increase in generation from renewable sources offsets the fall in the share of coal. The slice of generation from non-hydro renewables grows from 3 per cent in 2009 to 15 per cent in 2035, with almost 90 per cent of this increase from wind, biomass and solar. Natural gas, hydro and nuclear all maintain relatively constant shares of electricity generation throughout the period of, respectively, 22 per cent, 16 per cent and 13 per cent.
The change in the mix of technologies and fuels used to produce electricity is driven mainly by their relative costs, which are influenced by government policies. Government targets to reduce greenhouse-gas emissions and local energy-related pollution and, in some countries, the power sector’s dependence on imported fuels have a significant impact on technology choices. In the New Policies Scenario, two types of measure have the most significant impact on the generation mix over time: carbon pricing and subsidies to renewables.
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