Energy mix in transition

There are many signs that the energy industry is on the brink of profound change: from  2035 onwards the world will need less energy owing to rapid energy efficiency gains, and primary energy supply could well peak in 2032. The world’s energy system will decarbonise, with the 2050 primary energy mix split equally between fossil and non-fossil sources, according to DNV GL’s annual Energy Transition Outlook that helps analysts and decision makers in organisations involved directly or indirectly in the energy supply chain to develop their future strategic options.

The decarbonisation of the energy mix will be reflected in investment trends with money spent on renewables set to triple by 2050. Conversely, fossil fuel spending will drop by around a third. Overall, the rate of energy expenditure will slow to such a degree that by mid-century, as a percentage of GDP, the world will be spending 44 per cent less than today.

In this year’s annual Outlook DNV GL also spelt out the premise behind the notion of ’learning curves’ in that the cost of a technology decreases by a constant fraction with every doubling of installed capacity, owing to greater experience, expertise, and industrial efficiencies associated with market deployment and ongoing research and development.

“Wind and solar photovoltaics (PV) have shown significant cost reductions and market growth in the last two decades. For wind, the historical cost learning rate is 18 per cent per doubling, and we expect this to decline slightly to 16 per cent in our forecast period,” the report read.

“For PV, the learning rate is historically 18 per cent and we expect this to continue and to drive down the cost of new installations, accepting that as installed capacity mushrooms, the rate of doubling as a function of time will slow along with cost reductions.”

Notably, for systems dominated by variable renewables, which will be the case for several regions after 2040, storage capacity will be crucial, and DNV GL accounts for this in the forecast by adding storage costs to the renewables’ installations as they begin to dominate, which happens towards 2050 in several regions.

Interestingly, the learning curve for battery energy storage is expected to at least match those for wind and solar; and is set to 17 per cent in the model. Consequently there will be vehicle price/performance parity between internal combustion engine vehicles and battery electric vehicles by 2024.

Turning to the energy mix, oil demand will peak in the 2020s and natural gas will take over as the biggest energy source in 2026 and existing fields will deplete at a faster rate than the decrease in oil demand, however new oil fields will be required through to 2040.

Electricity consumption will more than double by mid-century to meet 45 per cent of world energy demand, and solar PV and wind energy will supply more than two thirds of that electricity, as seen in the figure below.

The rapid transition that is forecast, however, will not be sufficient to achieve the less than 2°C climate goal and the affordable nature of the energy transition means there is capital available for “extraordinary measures to further reduce carbon emissions … [however] there is no silver bullet and energy efficiency, renewables and carbon capture and storage (CCS) must all be ramped up to combat climate change”.

Globally, policy developments, despite some notable exceptions, continue to favour renewables technology. Last year, new renewable power capacity additions were more than double the new power capacity additions from fossil fuels. In capital markets, a reallocation of funds towards cleaner technology is underway.

“The transition is undeniable. Last year, more gigawatts of renewable energy were added than those from fossil fuels and this is reflected in where lenders are putting their money,” said Remi Eriksen, Group President and CEO of DNV GL. 

“The attention of boardrooms and cabinets should be fixed on the dramatic energy transition that is unfolding.  As money and policy increasingly favour gas and renewables, the rapidly electrifying energy system will deliver efficiency gains that outpace GDP and population growth.  This will result in a world needing less energy within half a generation from now.

“We need to capitalize on the affordability of the energy transition and take extraordinary measures to create a sustainable future.  We have a window of opportunity to increase energy efficiency, renewable energy and carbon capture and storage to meet the Paris Agreement but we must act now,” said Eriksen.  

The report makes for fascinating reading – issues around carbon pricing schemes, incentives for EV infrastructure, and for wind and solar, road transport energy use, maritime, aviation building and manufacturing sectors feature.

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