The global energy system is in a state of upheaval, thanks to the Covid-19 pandemic, which has “caused more disruption than any other event in recent history, leaving scars that will last for years to come,” says the International Energy Agency (IEA) in its latest World Energy Outlook (WEO).
“But whether this upheaval ultimately helps or hinders efforts to accelerate clean energy transitions and reach international energy and climate goals will depend on how governments respond to today’s challenges,” the report adds, suggesting that the next decade will be pivotal to both recovering from the current crisis and to tackling climate change.
Global energy demand is set to drop by 5% in 2020, with energy-related CO2 emissions down by 7% and investment in the sector 18% lower than the previous year as the pandemic-induced lockdowns around the world depress economic activity. Global energy demand will not return to pre-crisis levels until 2023 under current policy intentions and targets, or 2025 in the event of a prolonged pandemic and deeper slump.
Slower demand growth will keep oil and gas prices lower than before the crisis, while the drop-off in investment increases the risk of future market volatility.
“Renewables take starring roles in all our scenarios, with solar centre stage,” the WEO states, adding that “solar projects now offer some of the lowest cost electricity ever seen”. Supportive policies and maturing technologies are enabling very cheap access to capital in leading markets and solar PV is now consistently cheaper than new coal- or gas-fired power plants in most countries.
In the Stated Policies Scenario, renewables meet 80% of global electricity demand growth over the next decade. Hydropower remains the largest renewable source, but solar is the main source of growth, followed by onshore and offshore wind.
“I see solar becoming the new king of the world’s electricity markets. Based on today’s policy settings, it is on track to set new records for deployment every year after 2022,” said Dr Fatih Birol, the IEA Executive Director. “If governments and investors step up their clean energy efforts in line with our Sustainable Development Scenario, the growth of both solar and wind would be even more spectacular – and hugely encouraging for overcoming the world’s climate challenge.”
But the IEA says that the strong growth in renewables must be matched by robust investment in electricity grids, otherwise they will be a weak link in the transformation of the power sector, affecting the reliability and security of electricity supply.
Even under current policies, demand for coal never returns to pre-crisis levels and by 2040, its share of the energy mix falls below 20% for the first time since the Industrial Revolution, while the oil market remains vulnerable to the economic uncertainties thrown up by the pandemic. However, Asia drives growing demand for natural gas, the IEA predicts.
“The era of global oil demand growth will come to an end in the next decade,” Dr Birol said. “But without a large shift in government policies, there is no sign of a rapid decline. Based on today’s policy settings, a global economic rebound would soon push oil demand back to pre-crisis levels.”
In the IEA’s Sustainable Development Scenario, which is the Agency’s take on how the world can meet its sustainable energy objectives, there would be not just rapid growth of solar, wind and energy efficiency technologies but also a major scaling up of hydrogen, CCUS (carbon capture, utilisation and storage) and nuclear power. While the SDS has been praised as an improvement on the IEA’s previous assumptions, it has also been much criticised for outlining a vision of net zero emissions by 2070.
In a new scenario, Net Zero Emissions by 2050, the IEA sets out what is required to reach that point two decades earlier, saying that it “would demand a set of dramatic additional actions over the next 10 years. Bringing about a 40% reduction in emissions by 2030 requires, for example, that low-emissions sources provide nearly 75% of global electricity generation in 2030, up from less than 40% in 2019 – and that more than 50% of passenger cars sold worldwide in 2030 are electric, up from 2.5% in 2019.
“Electrification, innovation, behaviour changes and massive efficiency gains would all play roles. No part of the energy economy could lag behind, as it is unlikely that another would be able to move fast enough to make up the difference,” it adds.
“Amid deep disruption and uncertainty caused by the pandemic, a surge in well-designed energy policies is needed to put the world on track for a resilient energy system that can meet climate goals,” the WEO concludes.
“Despite a record drop in global emissions this year, the world is far from doing enough to put them into decisive decline. The economic downturn has temporarily suppressed emissions, but low economic growth is not a low-emissions strategy – it is a strategy that would only serve to further impoverish the world’s most vulnerable populations,” said Dr Birol. “Only faster structural changes to the way we produce and consume energy can break the emissions trend for good. Governments have the capacity and the responsibility to take decisive actions to accelerate clean energy transitions and put the world on a path to reaching our climate goals, including net-zero emissions.”