The Future of Energy — Is it really clean?
In the last post, we looked at the unprecedented rise in CO₂ levels against the backdrops of the various industrial revolutions. There is a 3-way race among coal (dirty), natural gas (in-between), and renewables (clean), that’s going on to meet the energy demands of developing countries. Which source will emerge as the leader? What’s the time frame? Let’s find out.
As promised in the post, to get a clearer picture, let’s look at the future of the energy landscape, and how clean it really is. The International Energy Agency (IEA) recently published the World Energy Outlook 2019 report that is a leading source of strategic insights into energy markets across the world. In this post, we will summarize key points from the report that shed light on the energy mix of the world (fossil fuels vs renewables). Then we analyze the various scenarios that map out the various consequences of energy policies and investment choices of governments across the globe.
The global energy landscape is filled with polar opposites and fundamental challenges. There is the conflict between the promise of energy access for all and the hard fact that more than a billion people are without power, the conflict between penetration of renewables and the stubborn presence and dependence on carbon-heavy fossil fuels, the conflict between the scientifically proven need to cut emissions and historically high CO₂ emission numbers in 2018.
There are 3 well-established scenarios that are recognized worldwide, (1) The ‘I Don’t Care’ Scenario, (2) The ‘I Care’ Scenario, and (3) The ‘I Really Care’ Scenario. These highlight the various possibilities for how the energy markets will play out in the next few decades.
The Scenarios
Current Policies Scenario (The ‘I Don’t Care’ Scenario). This is the scenario that plays out if no additional policy changes are adopted and the world continues along the current path. Projecting an energy demand growth of 1.3% per year, this is the most dangerous of the outcomes and puts the most stress on all aspects of energy security and existing infrastructure.
Stated Policies Scenario (The ‘I Care’ Scenario). This scenario takes into account today’s policies and targets that have been pledged. Under this scenario, we see a 1% growth per year in energy demand. Low-carbon sources led by solar panels drive more than half of this growth and natural gas drives another third. Oil demand flattens out by 2030s and coal demand declines. This scenario is a step in the right direction but the world still falls short of climate sustainability goals.
Sustainable Development Scenario (The ‘I Really Care’ Scenario). This scenario is completely aligned with the Paris Agreement but requires transformative and rapid changes across all parts of the energy infrastructure. It aims at limiting temperature rise to under 2ºC (3.6ºF) from pre-industrial levels. It also aims to pursue efforts to limit the rise to under 1.5ºC (2.7ºF).
Energy Security and the Continued Relevance of Oil
Shale output from US
Breakthroughs in shale technologies in the last ten years in the US has catapulted it to the status of a net exporter of both oil and gas. This has dramatically reshaped global markets, and rearranged the energy security playing field. Under the I Care Scenario, the US production will drive 85% of global oil production and 30% of global gas production through 2030.
Oil Market Share
Increased shale production transforms the oil market share in the world. Higher US output eats into the market share predominantly owned by OPEC countries. Their share drops to 47% in 2030 from 55% in the mid 2000s. However, whatever scenario plays out, the middle east region remains the largest net oil exporter to rest of the world. In addition, it remains a critical exporter of natural gas to rest of the world. In the I Care Scenario, 80% of international oil trade lands in Asia by 2040, driven mostly by the doubling of India’s energy import demands.
Electricity and modern energy security
Cost reduction in renewables
Low cost renewables have already started providing ample opportunities for energy transitions. In the I Care Scenario, solar and wind energy more than 50% of the additional electricity generation to 2040. In the I Really Care Scenario, they drive almost all of the growth. The fast expansion of solar and wind are positioned to overtake coal power by mid 2020s.
Lightning fast electricity growth
Electricity grows at double the pace of overall energy demand growth in the I Care Scenario. This establishes electricity as the powerhouse of the modern economy. The accelerated growth is driven by industrial motors, followed by household appliances, cooling and electric vehicles. In terms of final consumption, currently electrity share is less than half of that of oil. It is positioned to completely overtake oil by 2040.
Critical fuel choices
A three-way race
Coal might be on the decline in many developed countries but there is an active race among coal, natural gas and renewables to meet the growing energy demands of Asia’s fastest growing economies. Although new investments in coal have slowed down, it is still the leading source in most Asian countries even in the I Care Scenario. Penetration of renewables, the strongest contender to coal, will be led by China and India from the front. Developing economies from Asia will drive more than half of the global renewable energy growth.
Oil vs Electric vehicles
The I Care Scenario projects oil growth to slow down post 2025 and flatten out in the 2030s. There will still be strong demand in aviation, petrochemicals, and shipping. However, cars will see peak oil demand in the late 2020s before declining mostly driven by transition to electric vehicles. With continuously lowering battery costs, electric cars will soon become cost-competitive with traditional cars in major markets. There is a distinct headwind to this due to customer affinity for SUVs which have consume 25% more fuel per mile and are hard to completely electrify.
The Potential of Offshore wind
Reneweable penetration is currently led by solar and onshore wind. At a close number three is offshore wind energy.
The North Sea success
Cost reductions and the successful deployment of offshore wind turbines in the North Sea in Europe have been instrumental in untapping vast amounts of wind energy. The advantage of offshore wind comes from steady and strong currents, and it has the ability to meet the electricity demands for the entire world multiple times over! The generation capacity is much higher than solar or onshore wind, due to huge turbines that tap high speed and reliable winds further from the shore.
A trillion dollar investment
The success in the North Sea is causing other major economies like the US and China to also start investing in the offshore infrastructure. Several cost-competitive projects have sprung into existence and the industry is on track for trillion dollars worth of investment through 2040. In the I Really Care Scenario, offshore wind will compete with onshore wind on an even footing in Europe as the main driver of electricity generation, leading the way towards a complete de-carbonization of the power sector in the EU.
The Emergence of the African energy consumer
Africa in WEO 2019
Africa took center stage at the World Energy Outlook 2019 edition as it will influence energy trends significantly in the next few decades. Per the I Care Scenario, oil consumption increase through 2040 will exceed that of China. There will also be a major demand for natural gas to meet the energy needs of the continent. The biggest unknown is the penetration of solar power in a region so rich in sunlight. To date, Africa only accounts for 1% of the global solar installments which is shocking given the abundance of the solar resource there.
Energy needs of a half billion people
It is also projected that by 2040, more than 500 million people will be added to the urban population driven by overall population growth and migration to cities. To set context, this is much higher than China’s urban growth from 1990 to 2010. Africa is not expected to follow the same aggressive growth in fossil fuel infrastructure but the energy demands will still be drastic and game-changing.
Tackling legacy coal infrastructure
While the world makes progress towards cleaner energy sources, what happens to the existing coal power plants? There are emissions that are continuously contributed by existing and legacy coal plants which need to be curtailed. This is easier said than done due to the high operational lifetime of these plants. Therefore, in the I Care Scenario, there is no decline committed for the CO2 emissions from coal power plants.
There are three main options to deal with the existing coal infrastructure especially in developing economies in Asia; retrofitting plants with carbon capture systems, repurpose them to provide flexibility and complementary energy adequacy, and finally, decommissioning them early.
The outlook for gas
Gas grids have established themselves as a great mechanism to provide energy to the consumer. They deliver more energy than electricity grids but where they can shine most is by acting as a complementary source to the main electricity grid. In the near-term they can provide the right level of energy security and flexibility as we transition out of fossil fuels. In the long term, the question remains to be answered whether gas grids can truly deliver zero-carbon or low-carbon energy sources to the consumers.
Providing universal energy access at a global scale and cutting greenhouse emissions at the same time is a herculean task, not possible without strong leadership and cooperation from governments across the world. Individuals, companies, and non-profits can make significant impact but the greatest capacity lies with governments who have the power to set appropriate policies that are aligned with the climate change mitigation goals.
