The global energy sector is facing a major transformation, as electrification grows, renewables use expands, oil production is transformed and there is resurgent demand for natural gas.
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Across all regions and fuels, national policy choices will determine the future energy mix.
Geopolitical factors are exerting new and complex influences on energy markets, underscoring the critical importance of energy security. Against this background the International Energy Agency’s (IEA’s) latest analysis details global energy trends and their possible impact on supply, demand, carbon emissions and air pollution.
Scenario-based analyses in its World Energy Outlook 2018 (WEO 2018) outline different possible futures for the energy system across all fuels and technologies. It examines different pathways, based on current and planned policies, and those that can meet long-term climate goals under the Paris Agreement, reduce air pollution, and ensure universal energy access.
Geopolitical factors are exerting new and complex influences on energy markets
While the geography of energy consumption continues its historic shift to Asia, WEO 2018 finds mixed signals about the pace and direction of change. Oil markets, for instance, are entering a period of renewed uncertainty and volatility, with the possibility of a supply gap in the early 2020s. Demand for natural gas is on the rise, erasing talk of a glut as China emerges as a giant consumer. Solar photovoltaics are charging ahead, but other low-carbon technologies and, especially, efficiency policies still require a big push.
In all cases, governments will have a critical influence over the direction of the future energy system. This is a particular worry in the UK. Here the government has not updated or considered its energy policy since 2008, although the National Infrastructure Commission is putting it under pressure to do so, through its National Infrastructure Assessment It recommends that government only supports one more nuclear power station after Hinkley, citing the rapidly falling cost of solar and wind energy worldwide and the variable cost of new nuclear. The UK government must respond to the NIC’s recommendations at some point in 2019.
Under current and planned policies, modelled in the IEA’s New Policies Scenario, energy demand is set to grow by more than 25% to 2040, requiring more than $2 trillion (£1.5 trillion) a year of investment in new energy supply.
“Our analysis shows that over 70% of global energy investments will be government-driven and as such the message is clear – the world’s energy destiny lies with government decisions,” said IEA executive director Fatih Birol, speaking at the launch of WEO2018 in early November. “Crafting the right policies and proper incentives will be critical to meeting our common goals of securing energy supplies, reducing carbon emissions, improving air quality in urban centres, and expanding basic access to energy in Africa and elsewhere.”
The IEA says oil consumption is growing, due to rising petrochemicals, trucking and aviation demand. But meeting this demand in the near term means that approvals of conventional oil projects will have to double from their current low levels. Without such a pick-up in investment, US shale production, which has already been expanding at record pace, would have to add more than 10M barrels a day between now and 2025, the equivalent of adding another Russia to global supply in seven years – which would be an historically unprecedented feat.
Renewables, and solar in particular, have become phenomenally cheap
In power markets, renewables have become the technology of choice. In the IEA’s New Policies Scenario, renewables make up more than 60% of gross capacity additions between now and 2040 in most regions, reaching half of global power generation capacity by 2035. Solar photovoltaics is one of the fastest growing technologies and is projected to become the technology with the second largest installed capacity, projected to overtake wind in the next few years, hydropower within 15 years and coal before 2040.
“Renewables, and solar in particular, have become phenomenally cheap,” explains WSP head of renewables Tim Rippon. “It is driven by oversupply from China and it means, worldwide, the cost logical option is solar.”
The statistics bear this out. China and India are responsible for well over half of global solar photovoltaics capacity additions.
Rippon also points to key initiatives like the World Bank’s Scaling Solar programme, which aims to support emerging economies’ efforts to find private finance for such projects.
“We are seeing a very quick turnaround in connected schemes,” he says.
In the IEA scenario, wind power capacity will also grow rapidly, reaching 14% of global energy capacity by 2040, or around 1,700GW. In terms of electricity, power from hydro-electric schemes remains the largest source of renewables-based energy.
The world’s energy destiny lies with government decisions
Key drivers of the rise in renewables-based electricity include policy support and falling technology costs. Stable support policy frameworks encourage mass production and efforts to improve productivity and help drive down costs, in the longer term. As a result, by 2040, the global average support per unit of output for new solar photovoltaic projects is expected to decline by almost 90%, while support for new wind power projects is forecast to decline by almost 70%.
Unfortunately, European Union antidumping legislation means the UK is not currently benefiting from cheap Chinese renewables technology and falling prices. But, as Rippon notes, Brexit could change that.
“The UK market, with the exception of offshore wind, has done a bit of nose-dive. There have been very few build-outs recently and the onshore wind and solar markets have plateaued. Grand statements have been made but they have not been backed up in policy.”
On a global scale, however, this is transforming the global power mix, with the IEA forecasting the share of renewables in generation rising to over 40% by 2040, from 25% today, even though coal remains the largest source and gas the second-largest.
This expansion brings major environmental benefits and a new set of challenges that policy makers must address quickly. With renewables vulnerable to changing weather patterns, power systems will have to make flexibility the cornerstone of future electricity markets to keep the lights on; as Rippon notes, “you do still need a stable grid”.
The issue is of growing urgency as countries around the world are quickly ramping up their share of solar photovoltaics and wind, and will require market reforms and grid investments, as well as improved demand-response technologies, such as smart meters and battery storage technologies.
One solution is Tesla’s Powerwall, aimed at domestic consumers. It is a radiator-sized battery that sits on the wall of a domestic house and typically, stores energy generated by rooftop solar panels for use later in the day. The challenge for the renewable energy market is scale up such technology so that it can be used at grid level, explains Rippon.
If the world is serious about meeting its climate targets then, as of today, there needs to be a systematic preference for investment in sustainable energy technologies
Electricity markets are also undergoing a unique transformation with higher demand brought by the digital economy, electric vehicles and other technological changes. WEO 2018 also examines the impact of higher electrification in transportation, buildings and industry. It says that higher electrification would lead to a peak in oil demand by 2030 and reduce harmful air pollutants. But it would have a negligible impact on carbon emissions without stronger efforts to increase the share of renewables and low carbon sources of power.
The IEA’s Sustainable Development Scenario suggests a way to meet various climate, air quality and universal access challenges in an integrated way. In this scenario, global energy-related CO2 emissions peak around 2020 and then enter a steep and sustained decline, fully in line with the trajectory required to achieve the emissions reduction objectives of the Paris Agreement on climate change.
But most emissions linked to energy infrastructure are already essentially locked-in. In particular, coal-fired power plants, which account for one third of energy-related CO2 emissions today, represent more than a third of cumulative locked-in emissions to 2040. Most of these are related to projects in Asia, where coal-fired plants are just 11-years-old on average with decades left to operate, compared with the average age of 40 years in the United States and Europe.
“We have reviewed all current and under-construction energy infrastructure around the world – such as power plants, refineries, cars and trucks, industrial boilers, and home heaters – and find they will account for some 95% of all emissions permitted under international climate targets in coming decades,” said Birol.
“This means that if the world is serious about meeting its climate targets then, as of today, there needs to be a systematic preference for investment in sustainable energy technologies.
“But we also need to be much smarter about the way that we use our existing energy system. We can create some room for manoeuvre by expanding the use of carbon capture and storage, hydrogen, improving energy efficiency, and in some cases, retiring capital stock early.
“But to be successful, this will need an unprecedented global political and economic effort.”
Case Study | Net Power’s Allam Cycle technology
Oil and natural gas will be part of the energy system for decades to come – even if there are ambitious efforts to reduce greenhouse gas emissions in line with the Paris Agreement.
So it is crucial to reduce the immediate social and environmental impacts associated with producing and consuming these fuels.
Net Power, a Texas-based collaboration between US clean energy producer Exelon Generation, engineering firm McDermott and technology firm 8 Rivers Capital may have the answer.
It has developed a novel power system that produces low cost, reliable, and flexible electricity from natural gas, while generating no atmospheric emissions. It includes full CO₂ capture and no NOx production.
In May, Net Power successfully fired up its 50MW demonstration facility in La Porte, Texas.
The first phase of testing successfully demonstrated the novel combustor at full scale and the operability of the Net Power process. The last testing phase is expected to begin shortly and be completed by early 2019. If successful, Net Power expects to have the data necessary to begin detailed design of 300MW commercial scale plants with major power, oil and gas, and industrial customers around the world.
The plant is designed to demonstrate Net Power’s Allam Cycle technology, invented by British chemical engineer Rodney Allam. It uses a new turbine and combustor developed specifically for the process by Toshiba.