The price of petrol is increasingly volatile, coal is destined to decline, the electrification of consumption is growing and the cost of renewables continues to drop. And yet CO2 emissions have started to rise again, after three years of stability, and the planet is still a long way from meeting the environmental targets of the 2015 Paris Agreement. The World Energy Outlook 2018 report presented by the International Energy Agency (IEA) reiterates – with statistics to hand – the alarm call made by António Guterres, the Secretary General of the United Nations, when opening the COP24 Global Climate Conference.
“There is a growing and dangerous misalignment between the climate targets and the trends in the energy market,” explained Fatih Birol, Executive Director of IEA, at the presentation of the report on 6 December in Rome at the Enel Auditorium. Also taking part were: Patrizia Grieco, Enel Chairman; Francesco Starace, Enel CEO and General Manager; Ambassador Elisabetta Belloni, Secretary General of the Ministry of Foreign Affairs; Davide Crippa, Under Secretary to the Ministry of Economic Development; and Pasquale Lucio Scandizzo, Advisor to the Ministry of Economy and Finance.
The possible energy scenarios
“The most sold energy sector report in the world,” as Birol proudly called it, explores possible scenarios for the evolution of the energy sector between now and 2040.
The New Policies Scenario (NPS) assesses existing energy policies, as well as the results likely to stem from the implementation of announced policy intentions from governments all over the world. It describes an overall situation that is slowly improving – with a strong growth of renewable energy – but which is not, however, sufficient to contain CO2 emissions and reach the targets of the Paris Agreement. These targets would, however, be reached in the Sustainable Development Scenario (SDS), where the accelerated transition to clean energy sources determines the reduction of CO2 emissions, universal access to energy and the improvement of air quality.
“Policies matter,” writes Birol in the introduction: it is policy and policy choices that will determine which scenario becomes reality. “Energy and geopolitics have never been as closely linked as in recent years, and they will be increasingly so in the future,” he added at the Rome presentation.
Electricity is the new star
That “Electricity is the star of the show” is the real surprise of this year’s report which dedicates a special focus to the sector. Demand for electricity is growing at double the rate of energy and is destined to increase from now to 2040 in all three of the hypothetical scenarios. “Electricity is at the heart of the modern economy. It is the second most used source of energy worldwide after petrol and today it represents 19% of total consumption,” states the report, with the potential of reaching 65% with the technology that is already available today.
In 2017, the world population without access to electricity dropped below the billion mark for the first time, but the aim of the United Nations Sustainable Development Goal (SDG) 7 (Affordable and Clean Energy) is still far off: 600 million people in sub-Saharan Africa and 350 million people in Asia are still living without electricity.
According to the WEO report, the electricity sector is undergoing “the most radical transformation since its invention over a century ago.” Electricity is increasingly becoming the “preferred” source in the services, digital technologies and light industry sectors. The drop in the cost of technology is driving generation from renewable, non-programmable sources. The electricity sector is therefore, on the one hand, a key driver in the decarbonisation process while, on the other, requires the system to operate differently to how it has in the past to guarantee stability and the continuity of supply.
Flexibility is the new watch word. A rapid transition at the lowest cost possible requires accelerated investment for cleaner, smarter and more efficient energy technology. “Policy makers must, however, also guarantee the reliability and solidity of all the key elements in the energy supply, including the electricity grids,” states the report.
In the New Policies Scenario, the quota of generation from renewables will increase from the present 25% to approximately 40% in 2040: coal is, meanwhile, moving in the opposite direction. However, this is not enough: the WEO report warns that “additional measures are required to decarbonise the phase of generation: otherwise, the risk is that CO2 emissions will simply move from the valley to the mountain, that is, from the places of consumption to those of electricity generation.”
The growing competitive edge of photovoltaic solar energy means that its installed capacity will overtake wind energy (before 2025), hydroelectric power (approximately 2030) and coal (before 2040). “Solar PV has the momentum,” said Birol at the presentation in Rome, while wind energy is destined to become the prime source of energy in Europe.
Francesco Starace noted that “the IEA report confirms our observations regarding the increased demand for electricity and the growth of renewables that we have seen in the various parts of the world where we are present.” Furthermore, added the Enel CEO, as electricity generation is gradually decarbonised, two things happen: the cost of energy tends to drop because the percentage of energy produced at zero marginal cost goes up and it becomes less dependent on the variations in the price of fossil fuels. “This way electricity becomes increasingly employable in areas where its use was never previously considered.” For example, the transport sector, where there is an on-going expansion in the offer of electric vehicles from car manufacturers with a wide variety of models.
The new energy geography
The geography of energy is changing. In 2000, Europe and North America represented over 40% of the global energy demand and the developing economies in Asia approximately 20%. However, in 2040 the balance will switch. Already today, Asia alone counts for half of the global growth in demand for gas, 60% for wind and sun energy, over 80% for petrol and over 100% of the increase in carbon and nuclear energy consumption. Russia remains the largest exporter of gas in the world, but the economic development of China is driving the demand. Nuclear energy is still at about 10% of the global energy mix, but the fleet of power plants in advanced economies is getting old: at least 2/3 of the plants are over 30 years old.
In the New Policies Scenario, natural gas will overtake coal in 2030 and will become the second source in the world energy mix. Fossil fuels will remain the main source of electricity production but their quota will drop from approximately 2/3 today to less than 50% by 2040. This is not enough to meet the CO2 emissions targets agreed upon in Paris and to stop the effects of global warming. “The energy transition will take place whatever happens, the problem is the speed with which it does,” said Patrizia Grieco, in her opening address in Rome. We need to act quickly – the World Energy Outlook analysis warns us – before it’s too late.