I have been working in the energy industry for over twenty years. This doesn’t make me knowledgeable; on the contrary, prior knowledge and my likely inability to identify my areas of incompetence, blind spots, and possible overconfidence, certainly heighten the risk of the Dunning Kruger effect being applicable to the forecasts and analysis included in this post. Thus, to attempt to counter my preconceptions, biases, and errors, I will rely on studies and the opinion of experts in the industry.
Electricity market in 2030/2050: demand and supply
According to IEA, the electric market size in 2030 could be 28,141 TWh vs 23,398 terawatt-hours in 2018. Demand for electricity is set to increase further as a result of rising household incomes, with the electrification of transport and heat, and growing demand for digital connected devices and air conditioning. Electricity demand is projected to grow at an annual rate of 2% per year on average until 2030. Most of the projected growth in electricity demand occurs outside the OECD. Demand in non-OECD countries is expected to at an average annual rate of 3.8%.
By 2030, hydro, wind, solar PV, bioenergy, geothermal, concentrating solar, and marine power in aggregate could provide nearly 40% of the electricity supply (or at least 30% according to IRENA). China is expected to lead the way, expanding electricity from renewables by almost 1 500 TWh to 2030, which is equivalent to all the electricity generated in France, Germany, and Italy in 2019.
IRENA projects that by 2050, the share of renewables in the electricity supply would grow to 90% from 25% in 2018. The remaining 10% of total power generation in 2050 would be supplied by natural gas (around 6%) and nuclear (around 4%). Notably, variable renewable sources like wind and solar would grow to 63% of all generation in 2050, compared to 7% in 2018. IRENA’s projections for the share of renewables in the electricity supply is one of the highest, neverthless there is a clear consensus among those that have created scenarios (IPCC, BP, Equinor, Greenpeace, DNV, Teske) on the important role that electrification powered by renewable energy sources has in the decarbonisation of the energy system.
For projects with low-cost financing that can tap high-quality resources, solar PV is now the cheapest source of electricity in history. Technology costs have fallen significantly and will continue to decline through technology innovation, competition and growing markets, and regulatory streamlining.
It has been noticed that the level of renewable energy ambition and potential investment, tends to correlate with the energy price level. It has been estimated that renewables could meet 80% of global electricity demand growth during the next decade and overtake coal by 2025 as the primary means of producing electricity. Solar PV could grow by an average of 13% per year, meeting almost one-third of electricity demand growth over the next decade.
I am a strong believer in market efficiency. Markets provide affordable solutions, but a sustainable future requires policy guidance. There is a need to focus on overall system design rather than the cheapest source of renewable energy. Furthermore, to avoid ‘Texas-type’ situations, grids too will have to be modernized, expanded, and digitalized.
Energy GHG emissions
Energy is the dominant contributor to climate change, accounting for around 60 per cent of total global greenhouse gas emissions.
The following is IRENA’s formula for decarbonation:
- Stabilised energy demand through increased energy efficiency and circular economy measures while maintaining economic growth;
- Decarbonised power systems with supply dominated by renewables to meet growing needs;
- Electrification of end-use sectors, with the increased use of electricity in buildings, industry and transport;
- Expanded production and use of green hydrogen, synthetic fuels and feedstocks to pursue indirect electrification;
- Targeted use of sustainably sourced biomass, particularly in place of high-energy-density fuels such as those used in aviation and other transport modes, or in greening gas grids.
Energy investments need to shift to low-carbon energy transition solutions if the Paris Agreement goals are to be achieved. I believe that point forward, all investments in the energy industry could be allocated 100% to renewables and batteries, although 100% renewable energy global supply may not be achievable even by 2050.
Decarbonised electricity could provide a platform for reducing CO2 emissions in sectors other than power, through electricity-based fuels such as hydrogen or synthetic liquid fuels.
As far as I understand the main drivers for the cost competitiveness of hydrogen are a reduction in the price of electricity by at least 50%, and a reduction in the cost of electrolyzers. Economies of scale, are expected to significantly bring down the costs in the hydrogen value chain.
As an investment opportunity, analysts are completely bullish on renewables and an electrified economy. Wunderkind Tesla’s share price is expected to increase by 500% by 2025. Even if renewables capture most of the future demand, possibly most of the optimism around renewables as an investment opportunity is unwarranted given that electricity consumption will only grow between 2-4% per year.
“I’d put my money on the sun and solar energy. What a source of power! I hope we don’t have to wait until oil and coal run out before we tackle that”Thomas Edison (1931)