With global energy demand projected to increase by 37 per cent by 2040, new and existing power generation technologies competing for subsidies and space on the grid, and political uncertainties looming large, the International Energy Agency says today’s stresses on the global energy system cannot be ignored, writes Tildy Bayar.
The world’s energy system is “under stress” according to the International Energy Agency (IEA)’s annual World Energy Outlook, and is “in danger of falling short” of meeting global power needs. While ongoing advances in technology and efficiency offer some hope, “sustained political efforts” will be needed in order to avert eventual disaster. Policymakers must act now while focusing on the long term, and must take note of the problematic signs that are emerging around the world, the report warned.
IEA executive director Maria Van der Hoeven perhaps best summed up the report’s cautionary tone, saying: “While some things may not seem urgent today, this doesn’t mean they can be put off until tomorrow. If governments implement the right policies, they can help to move the world in the right direction.”
“Change or be changed” is a headline of the report, reflecting the situation for utilities and power producers now and, increasingly, in future. As the centre of gravity for the world’s energy markets shifts toward developing countries, especially in Asia, growing demand creates increased vulnerability to supply security issues.
The IEA has argued that energy supply can be regarded as secure only if it is produced and delivered in a manner compatible with modern environmental expectations, and the world’s governments are implementing forward-looking policies that will require compliance with stringent emissions regulations. However, environmentally friendly but intermittent energy sources such as solar and wind power present different energy security issues. As wind and solar’s share of the world’s energy mix quadruples, their integration into existing energy systems will become more challenging from both technical and market perspectives.
The development of the carbon capture and storage (CCS) technology that will move coal-fired power generation closer to meeting emissions goals is not happening quickly. Gas-fired power plants are being mothballed across Europe due to competition from renewables, and nuclear power plants are shutting down over safety concerns, being replaced in many regions by coal, which the IEA has called “unsustainable” in the long term. In short, the world’s energy system is in flux, and no one quite knows what the eventual mix will look like. The Outlook, however, hazards some predictions based on current and expected policy scenarios.
Climate change at the forefront
Chief among the underlying issues, IEA chief economist Fatih Birol believes, is the world’s disappearing carbon budget. The carbon budget that will keep global temperatures from rising over the 2°C limit needed to prevent climate change is around 2300 Gt. But without major policy changes, Birol warns, by 2040 we will have used up the entire amount, with the energy sector the main source of greenhouse gas emissions.
In 2013, global CO2 emissions increased by 2.6 per cent, reaching a record high of 33 Gt, and Birol says today’s policies risk locking in the current level of carbon emissions for many years to come. China is responsible for 60 per cent of global emissions, which makes 2014’s US-China climate agreement especially welcome as together the two countries emit 45 per cent of world greenhouse gases.
However, while van der Hoeven has called the two countries’ deal “a huge opportunity to make a difference”, she added that, “as always, it’s not only about announcing a deal but seeing that it’s going to work – then we’ll wait and see how effective the deal will
And while Birol (pictured right) warned that this year’s global climate summit in Paris is “our last chance” to avert climate change, van der Hoeven noted many governments’ “mixed signals” in the run-up to the event.
According to Birol, global low-carbon investment totalled almost $0.5 trillion in 2013, and is set to double by 2020. But in order to prevent climate change, that investment would need to increase by a factor of four compared to today – and, he says, “we are far from that”. Energy efficiency measures, which have significantly reduced worldwide energy demand, constitute the one bright spot in the likely scenario.
Gas on the rise
According to the Outlook, liquefied natural gas (LNG) is set to become the world’s “first fuel”, replacing coal, in all regions except Europe – which is “good news” from an energy diversification perspective, according to Birol. LNG will become “an important tool” for energy security, as a growing cast of international suppliers enters the market and regional markets are increasingy interconnected. But risks remain, as the Russia-Ukraine conflict has shown.
Global gas demand is set to grow to 5.4 tcm by 2040, or 24 per cent of the world’s energy mix, driven primarily by China, which is set to become a larger gas consumer than the EU by 2035. Gas demand in China is set to grow from 148 bcm in 2012 to over
600 bcm in 2040, or 11 per cent of the nation’s energy supply. The Middle East, where gas will continue to feature as a tool for preserving oil for export, is also set to be a key driver of global growth. Gas already accounts for almost 50 per cent of energy used in the region and is projected to reach 700 bcm by 2040.
Demand in the US is expected to reach 900 bcm by 2040, while the report projects that Japan’s gas use will return to pre-Fukushima levels. Gas consumption in Europe is not projected to return to 2010 levels until the early 2030s, with this outlook heavily contingent on policy action, especially CO2 pricing.
The Outlook sees the power sector remaining the world’s largest source of growth in gas demand to 2040, with gas use for power and heat generation rising to over 2.1 tcm. Gas’s share in power generation is expected to increase from 22 per cent in 2014 to 24 per cent in 2040 and, if this prediction comes true, it will be the only fossil fuel to grow, as coal and oil use decline.
While gas’s higher efficiency, greater flexibility, lower capital costs and shorter plant construction times give it a competitive edge over other fossil fuels, the report noted that the power sector’s growing gas use remains “very sensitive” to its cost-competitiveness, as well as to policy measures designed to encourage energy diversification or a reduction in power generation’s environmental impact.
Non-OECD countries will account for around 80 per cent of growth in gas consumption for power generation, with installed capacity more than doubling to 1440 GW by 2040, the report said. Gas is set to overtake coal for power generation in OECD countries by the mid-2020s.
Coal demand to slow; CCS a necessity
Coal remains by far the most favoured power generation fuel in non-OECD countries through 2040, due to these countries’ less stringent environmental standards and cheaper supplies. Birol has said coal is “crucial” for economic development in Asia and it has stepped in to provide power where countries such as Japan and Germany have taken nuclear power plants offline.
However, the report said the world’s demand for coal is set to plateau in the 2020s. While this demand will still grow, it will do so by an average of 0.5 per cent per year to 2040 (compared with growth of 2.5 per cent per year over the past 30 years) to reach almost 6350 Mtce. Almost two-thirds of the projected increase in world coal demand will occur in the next 10 years, the report said. This slowing in demand is due to policy measures designed to improve energy efficiency, support low-carbon fuels and price CO2 emissions.
China, the world’s largest coal user, is already beginning to use less, with an increase in demand of 5 per cent in 2013 compared to 10 per cent in previous years.
The nation’s coal demand is predicted to peak around 2030. Future growth will come mainly from India, which will be the world’s second largest coal consumer in 2020 after China, overtaking the US. Coal demand to 2040 is projected to decline in all major OECD regions.
The IEA has taken a strong stance on the world’s coal use, with van der Hoeven saying: “Although the contribution that coal makes to energy security and access to energy is undeniable, I must emphasize once again that coal use in its current form is simply unsustainable.
“For this to change,” she added, “we need to radically accelerate deployment of carbon capture and sequestration.”
Van der Hoeven also called for more investment in high-efficiency coal-fired power plants, especially in emerging economies. “New plants are being built, in an arc running from South Africa to Southeast Asia,” she said, “but too many of these are based on decades-old technology. Regrettably, they will be burning coal inefficiently for many years to come.” And Birol went further, saying that given its current incompatibility with environmental policy goals, the future of the coal industry will hinge on its use – or not – of high-efficiency plants and CCS technologies.
Nuclear’s uncertain future
Nuclear power’s share of global electricity generation peaked at 18 per cent almost 20 years ago, and has been declining since then. The report called nuclear’s prospects for the future “particularly uncertain in many parts of the world”. But, it said, whether “retreat, recovery or renaissance” eventually happens, nuclear power will remain an important part of the world’s energy mix.
In the Outlook’s forecast, global nuclear power capacity will grow by almost 60 per cent, from 392 GW in 2013 to 624 GW in 2040. However, nuclear’s share of the world’s electricity generation is projected to grow by just one percentage point, to 12 per cent. The number of countries operating reactors is set to rise from 31 to 36, as countries with new nuclear installations come to outnumber those shutting down their plants. Investment in nuclear capacity over the period to 2040 is predicted to be around $1.5 trillion.
China will account for 46 per cent of the growth in nuclear generation to 2040, while India, Korea and Russia together will account for 30 per cent. US nuclear generation will increase by 16 per cent, Japan will rebound somewhat (although not to pre-Fukushima levels) and capacity in the EU will fall by 10 per cent.
In addition, the IEA predicts a coming wave of nuclear plant retirements, with almost 200 of the 434 reactors operational in 2013 to be retired by 2040. Most of these aging plants will be in the EU, the US, Russia and Japan. Even with lifetime extensions for some plants, half of the EU’s nuclear capacity is predicted to retire, while if there are limited lifetime extensions and no new builds, EU capacity would drop to 5 per cent of current levels by 2040, global capacity would fall to 366 GW in 2040 and nuclear’s share in power generation would drop to 7 per cent.
Alternatively, under a different scenario where more plants start to be built on schedule and within budget and greater value is placed on nuclear power’s contribution to carbon abatement and baseload output, nuclear capacity could rise to 767 GW and its share in global generation to 14 per cent. And under a scenario where nuclear power plays a role in meeting climate targets, capacity could rise to 862 GW in 2040.
Decommissioning the large number of plants set to retire will be “a challenge for all of us – worldwide, we do not have much experience [with decommissioning] and are not well-prepared to deal with the 200 reactors that will retire in the next 25 years in terms of policies and funds,” Birol said. He also noted that the permanent disposal of nuclear waste is an issue the world needs to solve, “and soon”.
Addressing public opinion will be crucial to the further development of nuclear power, which the IEA did not explicitly endorse, although Birol said “many countries” consider it important for energy security, reliable baseload power generation and emissions reduction. However, there are “public concerns” around nuclear power which “need to be heard and addressed by governments”, Birol said.
Renewables to “go from strength to strength”
Renewables, van der Hoeven said, will “go from strength to strength” to account for nearly half of global capacity additions by 2040, overtaking coal as the world’s leading source of electricity. Wind power is set for the largest growth, followed by solar photovoltaics (PV) and hydropower.
Wind power capacity additions are the second-largest of all power technologies, behind gas-fired capacity, with wind capacity projected to reach 1320 GW by 2040 and the global wind power market to reach almost 75 GW per year. The share of renewables in the global power mix could gain 12 percentage points, the report said, half of which will be due to wind. And in the EU, the region with the highest wind penetration in the world, wind is set to contribute 20 per cent of total power generation.
Solar PV will see the second-largest installed capacity increase among renewables. Global capacity is set to hit 930 GW in 2040, with its maximum output equivalent to 15 per cent of estimated peak demand. PV will make up over 35 per cent of Japan’s energy mix and even more in parts of Europe, increasingly displacing conventional power technologies. The report noted that recent developments in China and Japan underscore an ongoing shift in the balance of solar PV installations to Asia.
Cumulative investment of $7.8 trillion will be needed for renewable energy supply to 2040, the report said. Wind power will continue to attract the largest amount of capital expenditure ($2.5 trillion), followed by hydropower ($1.9 trillion) and PV ($1.7 trillion). The average annual investment in renewables is expected to be around $270 billion between 2014 and 2040, 75 per cent higher than the average between 2000 and 2013. In OECD countries, two-thirds of the overall investment in new power plants is set to go to renewable technologies.
Renewables are increasingly competitive today, but the Outlook warns that continued subsidies are needed to facilitate their deployment and drive down their costs. Global renewables subsidies are predicted to increase up to 2030, nearing $230 billion, before declining to $205 billion in 2040 due to the retirement of supported capacity. The EU should remain the largest financial supporter of renewables through 2040, the report said, although the US will be a close second after 2035, and developing countries will collectively account for the bulk of global subsidies in 2040.
Fossil fuel subsidies currently in place are also “a huge problem” for renewables development, Birol has warned. Competing with artificially low prices for fossil fuels “means renewables don’t have any chance”,
he said. “If a government puts subsidies on fossil fuels, this means ‘Please use energy as inefficiently as possible with your electricity or car’ – this is giving all the wrong messages. This is why one of our main suggestions for a healthy energy system is to phase out fossil fuel subsidies”.
However, while he emphasized that growth in renewables is necessary in order to address climate change and energy security issues, a diverse energy mix is still needed and “we cannot have everything renewable”.