The IEA World Energy Outlook 2023 highlights the emergence of a new clean energy economy as a source of hope in an uncertain landscape. The same emerges from the Mckinsey report.
According to World Energy Outlook 2023 created by the International Energy Agency (IEA), in the future of global energy it is renewable sources that offer solid reasons for hope. The IEA study shows that the world of energy, although it remains fragile, has effective solutions to improve energy security and combat emissions.
There is certainly no shortage of factors for negative thinking: volatile energy markets, unstable geopolitics and the global economy, plus the negative macroeconomic climate and the growing and ever-present risk of further upheavals. Added to this is a worrying climate situation: the average global surface temperature is already around 1.2°C higher than pre-industrial levels. Nor does the energy sector, the main cause of the polluted air breathed by 90% of the world‘s population and 6 million premature deaths per year, sound good.
However, in the World Energy Outlook 2023 there is a positive note of hope: the emergence of a new clean energy economy, led by photovoltaics and electric vehicles. The IEA highlights how investments in clean energy have increased by 40% since 2020. Photovoltaics drives the Renewable Energy Sources sector: in terms of allocations alone, more than a billion dollars a day is spent on the development of ‘solar power.
While clean energy projects face headwinds in some markets due to cost inflation, supply chain bottlenecks and rising financing costs, green energy is the most dynamic aspect of global energy investments .
The uncertain geopolitical context also affects the energy sector. Despite everything, reasons for hope emerge linked to a new economy based on clean energy and led by photovoltaics and electric cars, reveals the IEA’s World Energy Outlook 2023. Investments in solar energy are growing – 1 billion per day – in wind power and electric vehicles, in the meantime for fossil fuels, despite the growth, the peak before the decline is expected before 2030. Also in the Global Energy Perspective 2023 of Mckinsey finds similar conclusions, a reflection of substantial changes in the world‘s energy future, in which networks will have an even more crucial role in the ongoing energy transition, especially smart grids.
World Energy Outlook 2023: by 2050, renewables will have the majority share in the energy mix
The drive to reduce emissions is one of the main reasons for the growth of renewable sources, but not the only one. The Agency itself reports it:
“The economic case for mature clean energy technologies is strong. Energy security is also a considerable factor.”
The progress of RES is undoubted and is already a reason for hope: if in 2022 they provided 30% of the electricity generated worldwide, by 2030 this percentage will rise to almost 50% in the Stated Policies Scenario (STEPS), that is, in the scenario based on the most recent policy settings, including energy, climate and related industrial ones. From 2031 to 2050, renewables are expected to overtake fossil fuels: in the two decades considered, RES will constitute the majority of the energy mix. The future of energy, therefore, is in the name of photovoltaic, wind & C.
Added to this is the slow decline of fossil fuels: the share of coal, oil and natural gas in global energy supply, which has remained constant for decades at around 80%, is starting to decline and will reach 73% in STEPS by 2030. “This is an important change” underlines IEA.
To the forecasts that can be read in the World Energy Outlook 2023 are also those presented in the same days by Mckinsey, through the “Global Energy Perspective 2023”. There is no shortage of considerations regarding the difficult context that emerge in it too. In any case, it confirms the growth trend of renewables: by 2040, analysts expect that solar and wind will together contribute to the largest share of the global energy mix. “Substantial” investments will be necessary to support the spread of renewable energy as well as to provide sufficient fossil fuels to integrate these sources.
“We expect total energy investments to increase from $1.5 trillion in 2021 to between $2 trillion and $3.2 trillion in 2040.”
McKinsey also predicts a gradual but continuous shift in investment focus from fossil fuels to green technologies and electricity transmission and distribution.
“Despite representing only 20% of total investments in 2015, renewable energy and decarbonization technologies are expected to make up between 40 and 50% of total investments by 2040.”
The future of energy read through the oil crisis of 50 years ago
To understand the future of energy it is appropriate to look to the past. The International Energy Agency (IEA) does so in the World Energy Outlook 2023, recalling the oil shock of 50 years ago. However, the crisis also brought about new opportunities. The IEA itself was born just half a century ago, with the aim of safeguarding energy security.
There are significant differences with the past context. From then to today the world has changed. It is not a figure of speech, but the observation of a profound change, or rather a revolution. The energy transition is the goal towards which this revolution is moving, led by renewable sources which are having a “genuine momentum” like never before, highlights the executive director of the Agency, Fatih Birol, considering what emerges from the 2023 report.
Even today there are sensitive crises that are undermining many securities, as well as causing death and destruction: let’s think of Ukraine and today the conflict that has Israel as its epicenter.
But there are at least three differences compared to what we experienced in the 1970s: the global energy system has changed considerably; today we already have the “clean” energy technologies to change the energy system itself, and do so while maintaining the safe and affordable supply of energy services; the “momentum” of the energy transition is already underway. This is why Birol states that “the world is much better prepared than we were 50 years ago”.
Critical factors and elements of hope
This doesn’t mean things are going well. Far from it, remember the World Energy Outlook 2023 well:
“Today, global average surface temperatures are already about 1.2°C above pre-industrial levels, causing heat waves and other extreme weather events, and greenhouse gas emissions have not yet peaked. The energy sector is also the main cause of air pollution that more than 90% of the world‘s population is forced to breathe, linked to more than 6 million premature deaths per year.”
However, there are elements that offer hope for the future of energy. IEA lists the emergence of a new economy based on clean energy, driven mainly by photovoltaics and electric vehicles. Investments in renewable sources have increased by 40% since 2020 and continue to grow.
“The drive to reduce emissions is one of the main reasons, but not the only one. The economic case for mature clean energy technologies is strong. Energy security is also an important factor, particularly in fuel-importing countries, as are industrial strategies and the desire to create jobs in the clean energy sector.”
IEA is quick to point out that not all clean technologies are thriving and some supply chains, particularly wind, are under pressure, but there are striking examples of an increasingly rapid pace of change.
However, more than 500 GW of renewable generation capacity will be added in 2023 – a new record. Then add the progress of electric cars, whose increase in sales is significant: just three years ago, in 2020, one in 25 cars sold was electric; in 2023 it is one in five.
Other elements of hope come from the political strategies of China and the USA, two of the world‘s largest emitters. The People’s Republic, in particular, has a huge role in shaping global energy trends. The significant reliance on fossil fuels to fuel growth has major side effects: China is responsible for nearly two-thirds of the increase in global oil consumption, nearly one-third of the increase in natural gas, and has been the dominant player in coal markets. But its economy is reaching the downturn and as a result this will lead to lower future energy demand in the most energy-intensive sectors. Furthermore, China is also a powerhouse in the clean energy sector, accounting for approximately half of wind and solar energy and well over half of global electric vehicle sales in 2022. China has continued and continues to invest in clean energy. This is also proven by the data regarding the expected additions of solar photovoltaic and offshore wind by 2030: today they are three times higher than in the 2021 IEA report.
As for the US, however, the Inflation Reduction Act, the Bipartisan Infrastructure Investment and Jobs Act and other recent policies have reshaped the US energy outlook. In particular, the IRA will achieve significant positive impacts in terms of the development of renewables. By 2030, PV generation will exceed 800 TWh in the STEPS scenario, and wind energy will reach 1000 TWh, approximately 66% and 50% higher than the level predicted in the 2021 report, respectively.
The role of networks and smart grids
Given the significant growth of renewable sources and, in general, of energy and electricity production, will the networks be ready in time to allow the transition of the energy sector? The IEA asks this, recalling that today there are approximately 80 million kilometers of electricity networks in the world and that “significant improvements to the network are needed in all scenarios to meet the growing pace of electrification and the accelerated diffusion of renewable energy sources” . Relying on new transmission lines to connect large-scale wind and photovoltaic projects to demand centers, sometimes over long distances, will be essential, and offshore substations and cables are needed to connect new and planned offshore wind farms to the mainland. Distribution lines also need to be expanded to meet the growing demand for electricity and the rapid growth of distributed solar PV capacity
“The total length of the network lines increases by approximately 18% from 2022 to 2030 in the STEPS and APS scenarios and by 20% in the Net Zero Emission scenario.” In addition to extending power lines, investments in digitalization, intelligent systems and advanced high-power semiconductor technologies are needed to improve the control and stability of electrical flows. For this reason, smart grids and network components will be fundamental, such as flexible alternating current transmission systems, capable of facilitating the management of the growing share of variable generation from solar photovoltaic and wind. Furthermore, they represent an opportunity to improve network management and to make new investments in networks more targeted and efficient and to support a large part of the future of energy.
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