IEA predicts energy outlook

The COVID-19 pandemic has caused massive disruption and the world faces the weakest decade of energy demand growth since the 1930s. This is the startling forecast of the latest International Energy Agency (IEA) World Energy Outlook, which examines the impact of the pandemic and prospects for rapid clean energy transitions. According to IEA analysis, global energy demand is set to drop by 5% in 2020, energy-related CO₂ emissions by 7% and energy investment by 18%.

Comparing four different scenarios, the ‘Stated Policies Scenario’, reflects today’s announced policy intentions and targets. In this approach, global energy demand is forecast to rebound to its pre-crisis level in 2023. However, the rebound doesn’t happen until 2025 in the event of a prolonged pandemic and deeper slump in the ‘Delayed Recovery Scenario’. Slower demand growth is forecast to lower the outlook for oil and gas prices compared with pre-crisis trends. And large declines in investment could increase of future market volatility.

The ‘Sustainable Development Scenario’ forsees a surge in clean energy policies and investment, in line with the Paris Agreement’s energy access and air quality goals. And the ‘Net Zero Emissions by 2050’ case extends this picture, with a rising number of countries and companies targeting net zero emissions by mid-century.

Renewables play an important part in all the scenarios, with a key role for solar at centre stage. What’s more, supportive energy policies and maturing technologies enable cheap access to capital in leading markets. The IEA points out that solar PV (photovoltaics) is now consistently cheaper than coal- or gas-fired power plants in most countries, and solar projects offer some of the lowest cost electricity ever seen.

In the Stated Policies Scenario, renewables meet 80% of global electricity demand growth over the next decade. While hydropower remains the largest renewable energy source, solar is the main source of growth, followed by onshore and offshore wind.

‘I see solar becoming the new king of the world’s electricity markets. Based on today’s policy settings, it is on track to set new records for deployment every year after 2022,’ says Dr Fatih Birol, Executive Director, IEA. He suggests: ‘If governments and investors step-up their clean energy efforts in line with our Sustainable Development Scenario, the growth of both solar and wind would be even more spectacular.’

The World Energy Outlook maintains strong growth of renewables needs to be paired with robust investment in electricity grids. And warns that ‘without enough investment, grids will prove to be a weak link in the transformation of the power sector, with implications for the reliability and security of electricity supply’.

Coal demand’s share in the 2040 energy mix is forecast to fall below 20% for the first time since the Industrial Revolution. But demand for natural gas is expected to grow significantly, mainly in Asia, while oil remains ‘vulnerable’ to major economic uncertainties resulting from the pandemic. Dr Birol insists: ‘The era of global oil demand growth will come to an end in the next decade. But without a large shift in government policies, there is no sign of a rapid decline. Based on today’s policy settings, a global economic rebound would soon push oil demand back to pre-crisis levels.’

The IEA predicts that global emissions will bounce back more slowly than after the financial crisis of 2008–2009, ‘but the world is still a long way from a sustainable recovery’. However, a step-change in clean energy investment offers a way to boost economic growth, create jobs and reduce emissions. Indeed, this approach is currently proposed by the UK, the European Union, Canada, South Korea and a few other countries.

The IEA Sustainable Recovery Plan also anticipates major scale-up of hydrogen and carbon capture, utilisation and storage (CCUS) over the next decade, in addition to rapid growth in solar, wind and energy efficiency technologies, and new momentum behind nuclear power.

'Despite a record drop in global emissions this year, the world is far from doing enough to put them into decisive decline,’ says Dr Birol. ‘The economic downturn has temporarily suppressed emissions, but low economic growth is not a low-emissions strategy – it is a strategy that would only serve to further impoverish the world’s most vulnerable populations.’

The IEA suggests significant effort would have to focus on reducing emissions from existing energy infrastructure – such as coal plants, steel mills and cement infrastructure (hard-to-abate sectors), otherwise it warns ‘international climate goals will be pushed out of reach, regardless of actions in other areas’. Detailed new analysis in the World Energy Outlook shows that if today’s energy infrastructure continues to operate in the same way as it has done so far, it would already lock in a temperature rise of 1.65^oC.

Nevertheless, despite these major challenges, the IEA believes the vision of a net zero emissions world is increasingly coming into focus. The ambitious pathway mapped out in the Sustainable Development Scenario relies on countries and companies hitting their announced net zero emissions targets on time and in full, bringing the world to net zero by 2070.

However, reaching that point two decades earlier, in accordance with the Net Zero Emissions by 2050 scenario would demand dramatic additional actions over the next decade, requiring 40% reduction in emissions by 2030, with low-emissions sources providing 75% of electricity generation in 2030, compared with 40% in 2019; with 50% of passenger cars being electric, up from 2.5% in 2019; and massive behaviour changes and energy efficiency gains.

Petra Nova CCS facility, US - The IEA Sustainable Recovery Plan  anticipates major scale-up of carbon capture, utilisation and storage (CCUS), and hydrogen, over the next decade
Photo: Global CCS Institute