Governments have critical role in future energy investments

As major transformations are underway for the global energy sector, energy demand is set to grow by more than 25 percent to 2040, requiring more than $2 trillion a year of investment in new energy supply, says World Energy Outlook 2018 from International Energy Agency (IEA).

Considering the growth and investment required in the sector, the report underlines that governments will have a critical influence in the direction of the future energy system.

Oil markets are entering a period of renewed uncertainty and volatility, including a possible supply gap in the early 2020s. Meanwhile, demand for natural gas is on the rise, erasing talk of a glut as China emerges as a giant consumer. Solar PV is charging ahead, but other low-carbon technologies and especially efficiency policies still require a big push.

“Our analysis shows that over 70 percent 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 Dr Fatih Birol, the IEA’s executive director.

“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 centers, and expanding basic access to energy in Africa and elsewhere,” Birol added.

As oil consumption is set to grow in the coming decades, approvals of conventional oil projects need 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 10 million barrels a day from today to 2025, the equivalent of adding another Russia to global supply in seven years – which would be a historically unprecedented feat.

In power markets, renewables have become the technology of choice, making up almost two-thirds of global capacity additions to 2040, thanks to falling costs and supportive government policies.

According to IEA, the interest around renewable is transforming the global power mix, with the share of renewables in generation rising to over 40% by 2040, from 25% today, even though coal remains the largest source and gas remains the second-largest.

However, the expansion also brings associated challenges that policy makers need to address quickly. With higher variability in supplies, power systems will need to make flexibility the cornerstone of future electricity markets in order to keep the lights on.

The issue is of growing urgency as countries around the world are quickly ramping up their share of solar PV and wind, and will require market reforms, grid investments, as well as improving demand-response technologies, such as smart meters and battery storage technologies, the report said.

Electricity markets are also undergoing a unique transformation with higher demand brought by the digital economy, electric vehicles and other technological change. The report finds that higher electrification would lead to a peak in oil demand by 2030, and reduce harmful local air pollutant. 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.

IEA also finds t hat 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 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.

To meet the climate targets, there needs to be a systematic preference for investment in sustainable energy technologies. Also, there should be a smarter way to use the existing energy system, IEA report says.

editor@greentechlead.com