The International Energy Agency's (IEA) World Energy Outlook 2023 underscores the emergence of a new, clean-energy-driven economy, offering a beacon of hope in a landscape rife with uncertainty – a sentiment that resonates with the findings of the McKinsey report.

The IEA’s World Energy Outlook 2023 posits renewable energy sources as strong pillars of optimism in shaping the global energy future. The study reveals that despite the inherent fragility in the energy sector, there exist robust solutions aimed at bolstering energy security and mitigating emissions.

The drivers of pessimism are abundant: the volatility of energy markets, geopolitical and global economic instability, compounded by a daunting macroeconomic climate and the perpetual threat of further upheavals. Complicating matters is the climate crisis: the global average surface temperature currently hovers around 1.2°C above pre-industrial levels. Moreover, the energy sector, as the primary contributor to air pollution affecting over 90% of the global populace and accounting for 6 million premature deaths annually, scarcely offers reassurance.

Yet, the World Energy Outlook 2023 shines a light on a glimmer of hope: the ascendancy of a clean energy-led new economy, propelled by photovoltaic technology and electric vehicles. The IEA highlights a 40% surge in clean energy investments since 2020, with photovoltaics spearheading the renewable energy sector – over one billion dollars are invested daily in solar energy development.

Despite facing hurdles such as inflated costs, supply chain constraints, and escalating financing charges in some markets, the realm of green energy remains the most dynamic segment within global energy investments.

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Takeaways

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World Energy Outlook 2023: Renewables to Dominate the Energy Mix by 2050

The impetus to reduce emissions stands as a primary driver behind the growth of renewable sources, yet it is not the sole factor. As the Agency points out::

“The economic incentive for established clean energy technologies is compelling. Energy security, too, is a paramount consideration”.

The advancement of Renewable Energy Sources (RES) is irrefutable and offers a beacon of hope: in 2022, they accounted for 30% of global electricity generation, a figure projected to approach 50% by 2030 in the Stated Policies Scenario (STEPS), reflecting current policy trends across energy, climate, and related industries. From 2031 to 2050, renewables are slated to surpass fossil fuels, forming the bulk of the energy mix. Hence, the energy future is set to be shaped by photovoltaics, wind energy, and beyond.

There is also a gradual retreat from fossil fuels: their share in global energy supply, steadfast at around 80% for decades, is predicted to fall to 73% by 2030 in the STEPS. ‘This represents a significant shift,’ the IEA emphasizes.

The forecasts in the World Energy Outlook 2023 are further supported by McKinsey’s ‘Global Energy Perspective 2023.’ Despite acknowledging the challenging environment, it reaffirms the upward trajectory of renewables: by 2040, solar and wind power are anticipated to constitute the largest portion of the global energy mix. ‘Substantial investments will be necessary both to foster the proliferation of renewable energy and to ensure adequate fossil fuel supplies to complement these sources.

‘We anticipate a rise in overall energy investments from 1500 billion dollars in 2021 to between 2000 and 3200 billion by 2040.’

McKinsey also predicts a gradual yet steadfast redirection of investment focus from fossil fuels to green technologies and electrical transmission and distribution.

“Renewable energies and decarbonization technologies, which accounted for merely 20% of total investments in 2015, are projected to represent 40 to 50% of total investments by 2040.”

Understanding the Energy Future Through the Prism of the Oil Crisis 50 Years Ago

To grasp the future of energy, it is instructive to reflect on the past. This perspective is embraced by the International Energy Agency (IEA) in its World Energy Outlook 2023, which revisits the oil crisis of 50 years ago. That crisis, while disruptive, also catalyzed new opportunities. The IEA itself was conceived precisely half a century ago, dedicated to securing energy stability.

There are notable differences when compared to the past context. The world has indeed undergone a transformation since then. This is not just a colloquial expression, but an acknowledgment of a profound shift, tantamount to a revolution. This revolution is steering towards an energy transition, fueled by renewable sources which are now experiencing an ‘unprecedented surge,’ as underscored by Fatih Birol, the Executive Director of the Agency, in light of the 2023 report’s findings.

Presently, we are confronted with sensitive crises that are shaking the foundations of many certainties, leading to widespread death and destruction: take, for instance, Ukraine and the ongoing conflict centered around Israel.

However, there are at least three distinct differences compared to the 1970s: the global energy system has undergone significant changes; we now possess ‘clean’ energy technologies capable of transforming the energy system itself, whilst ensuring a secure and affordable energy supply; the ‘momentum’ for an energy transition is already in motion. Consequently, Birol asserts that ‘the world is far better prepared than we were 50 years ago.’

Critical Factors and Elements of Hope

This does not imply that the situation is entirely positive. Quite the contrary, as noted in the World Energy Outlook 2023:

“Today, the average global surface temperature is already approximately 1.2°C above pre-industrial levels, leading to heatwaves and other extreme weather events, with greenhouse gas emissions yet to peak. The energy sector remains the principal contributor to air pollution, affecting over 90% of the global population and linked to more than 6 million premature deaths annually.”

Nevertheless, there are elements that offer hope for the future of energy. The IEA points to the rise of a new economy founded on clean energy, primarily propelled by photovoltaics and electric vehicles. Investments in renewable sources have escalated by 40% since 2020 and continue to rise.

“The drive to curtail emissions is a primary reason, but not the sole one. The economic rationale for established clean energy technologies is compelling. Energy security is also a critical factor, especially in countries that import fuels, as are industrial strategies and the ambition to create jobs in the clean energy sector.”

The IEA also acknowledges that not all clean technologies are flourishing, with certain supply chains, especially in the wind sector, facing challenges. Nonetheless, there are remarkable instances of an increasingly rapid pace of change.

Moreover, an unprecedented 500 GW of renewable energy generation capacity is set to be added in 2023, setting a new record. Progress in the field of electric vehicles is also significant: as recently as 2020, only one in 25 cars sold was electric; by 2023, this figure has risen to one in five.

Other hopeful signs stem from the political strategies of China and the USA, two of the world’s largest emitters. China, in particular, plays a pivotal role in shaping global energy trends. Its substantial dependence on fossil fuels to fuel its growth has significant ramifications: China is accountable for almost two-thirds of the global increase in oil consumption, nearly a third of the rise in natural gas, and remains a dominant player in coal markets. However, its economy is approaching a turning point, likely leading to reduced future energy demand in its most energy-intensive sectors. Furthermore, China is a leader in the clean energy sector, responsible for approximately half of the world’s wind and solar energy and more than half of global electric vehicle sales in 2022. China’s ongoing investment in clean energy is evident, with expected additions in solar photovoltaic and offshore wind by 2030 now triple those projected in the IEA’s 2021 report.

In the USA, legislation such as the Inflation Reduction Act, the Bipartisan Infrastructure Investment and Jobs Act, and other recent policies have significantly altered the country’s energy outlook. The IRA, in particular, is expected to have a substantial impact on renewable development. By 2030, photovoltaic output is projected to surpass 800 TWh in the STEPS scenario, with wind energy reaching 1000 TWh, representing increases of approximately 66% and 50% respectively over levels forecasted in the 2021 report.

The Role of Networks and Smart Grids – World Energy Outlook 2023

With the considerable growth in renewable sources and overall energy and electricity production, a key question arises: will the networks be ready in time to support the energy sector’s transition? The IEA addresses this concern, noting that the world currently has about 80 million kilometers of electric networks, and that ‘significant network improvements are required in all scenarios to accommodate the accelerating pace of electrification and the rapid expansion of renewable energy sources.’ New transmission lines will be crucial for connecting large-scale wind and photovoltaic projects to demand centers, sometimes over vast distances, and there’s a need for substations and offshore cables to link new and planned offshore wind farms to the mainland. Additionally, distribution lines must be expanded to cater to the increasing electricity demand and the swift growth of distributed solar photovoltaic capacity.

‘The total length of network lines is expected to increase by approximately 18% from 2022 to 2030 in the STEPS and APS scenarios, and by 20% in the Net Zero Emission scenario.’ Beyond extending electric lines, investment in digitalization, intelligent systems, and advanced high-power semiconductor technologies is essential to enhance the control and stability of electrical flows. Hence, the importance of smart grids and network components, such as flexible alternating current transmission systems, which facilitate the management of the growing proportion of variable generation from solar photovoltaics and wind. They also present an opportunity to improve network management, making new investments in networks more targeted and efficient, and playing a substantial role in shaping much of the future of energy.