With projections and analysis extended to 2040 for the first time, WEO-2014 provides insights that can help ensure a change of the energy system by design, rather than just by events.
In the central scenario of WEO-2014, world primary energy demand is 37% higher in 2040, putting more pressure on the global energy system. But this pressure would be even greater if not for efficiency measures that play a vital role in holding back global demand growth.
The scenario shows that world demand for two out of the three fossil fuels – coal and oil – essentially reaches a plateau by 2040, although, for both fuels, this global outcome is a result of very different trends across countries. At the same time, renewable energy technologies gain ground rapidly, helped by falling costs and subsidies (estimated at $120 billion in 2013). By 2040, world energy supply is divided into four almost equal parts: low-carbon sources (nuclear and renewables), oil, natural gas and coal.
“As our global energy system grows and transforms, signs of stress continue to emerge,” said IEA Executive Director Maria van der Hoeven. “But renewables are expected to go from strength to strength, and it is incredible that we can now see a point where they become the world’s number one source of electricity generation.”
Renewables are expected to account for nearly half of the global increase in power generation to 2040, and overtake coal as the leading source of electricity. Wind power accounts for the largest share of growth in renewables-based generation, followed by hydropower and solar technologies. However, as the share of wind and solar PV in the world’s power mix quadruples, their integration becomes more challenging both from a technical and market perspective.
Prices and policies have to be right to get more efficiency into the mix
Energy efficiency is a critical tool to relieve pressure on energy supply and it can also mitigate in part the competitive impacts of price disparities between regions. A renewed policy focus on efficiency is taking hold in many countries and the transport sector is in the front line. With more than three-quarters of global car sales now subject to efficiency standards, oil transport demand is expected to rise by only one-quarter despite the number of cars and trucks on the world’s roads more than doubling by 2040.
New efficiency efforts have the effect of suppressing total oil demand growth by an estimated 23 mb/d in 2040 – more than current oil production of Saudi Arabia and Russia combined – and measures mainly in power generation and industry hold the growth in gas demand back by 940 billion cubic metres, more than current gas output in North America.
Aside from reducing energy-import bills and environmental impacts, efficiency measures can also help in part to address the concern, felt in some import-dependent regions, that relatively high prices for natural gas and electricity put their energy-intensive industries at a competitive disadvantage. But regional energy price disparities are set to persist and North America, in particular, remains a relatively low-cost region through to 2040: the average amount spent on a unit of energy in the United States is expected even to fall below that of China in the 2020s.
Power sector is leading the transformation of global energy
Electricity is the fastest-growing final form of energy, yet the power sector contributes more than any other to the reduction in the share of fossil fuels in the global energy mix. In total, some 7 200 gigawatts (GW) of capacity needs to be built to keep pace with increasing electricity demand while also replacing existing power plants due to retire by 2040 (around 40% of the current fleet).
The strong growth of renewables in many countries raises their share in global power generation to one-third by 2040. Adequate price signals will be needed to ensure timely investments in the new thermal generation capacity, which is necessary, alongside investment in renewables, to maintain the reliability of electricity supply. This will require reforms to market design or electricity pricing in some cases.
The shift towards more capital-intensive technologies and high fossil fuel prices lead to increasing average electricity supply costs and end-user prices in most countries in the world. However, end-use efficiency aims help reduce the proportion of household income spent on electricity.
Renewable energy technologies, a critical element of the low-carbon pillar of global energy supply, are rapidly gaining ground, helped by global subsidies amounting to $120 billion in 2013. With rapid cost reductions and continued support, renewables account for almost half of the increase in total electricity generation to 2040, while use of biofuels more than triples to 4.6 mb/d and the use of renewables for heat more than doubles.
At the World Energy Outlook 2014 report presentation in Copenhagen on 18 November 2014, Chief Economist at the International Energy Agency Dr. Fatih Birol thanked Denmark for its stubbornness and for continuing to push for the integration of renewable energies in the EU system and beyond, highlighting that renewable energy is now going mainstream.
Danish minister for Climate, Energy and Building Mr. Rasmus Helveg Petersen also made a presentation in connection with the WEO 2014 report where he touched upon Denmark’s sharing of renewable energy experiences and willingness to collaborate worldwide. The minister mentioned three interlinked goals for the Danish energy system, namely sustainability, economic competitiveness and energy security of supply.
The share of renewables in power generation increases most in OECD countries, reaching 37%, and their growth is equivalent to the entire net increase in OECD electricity supply. However, generation from renewables grows more than twice as much in non-OECD countries, led by China, India, Latin America and Africa. Globally, wind power accounts for the largest share of growth in renewables-based generation (34%), followed by hydropower (30%) and solar technologies (18%).
As the share of wind and solar PV in the world’s power mix quadruples, their integration both from a technical and market perspective becomes more challenging, with wind reaching 20% of total electricity generation in the European Union and solar PV accounting for 37% of summer peak demand in Japan.