It has been a tumultuous year for the global energy system. The COVID-19 crisis has caused more disruption than any other event in recent history, leaving scars that will last for years to come. But whether this upheaval ultimately helps or hinders efforts to accelerate clean energy transitions and reach international energy and climate goals will depend on how governments respond to today’s challenges.
With this in mind, the World Energy Outlook 2020, published by the International Energy Agency (IEA) focuses on the pivotal period of the next 10 years, exploring different pathways out of the crisis. The new report provides the latest IEA analysis of the pandemic’s impact: global energy demand is set to drop by 5 percent in 2020, energy-related CO2 emissions by 7 percent, and energy investment by 18 percent.
Several scenarios are also outlined as to how the energy sector will develop in the near future:
- COVID-19 is gradually brought under control in 2021 and the global economy returns to pre-crisis levels the same year. This scenario reflects all of today’s announced policy intentions and targets, insofar as they are backed up by detailed measures for their realisation. Global energy demand rebounds to its pre-crisis level in early 2023.
- A prolonged pandemic causes lasting damage to economic prospects. The global economy returns to its pre-crisis size only in 2023, and the pandemic ushers in a decade with the lowest rate of energy demand growth since the 1930s. Global energy demand recovers to its pre-crisis level in 2025.
- A surge in clean energy policies and investment puts the energy system on track to achieve sustainable energy objectives in full, including the Paris Agreement, energy access and air quality goals. The assumptions on public health and the economy are the same as in the first scenario.
- The new net zero emissions by 2050 case extends the third scenario. A rising number of countries and companies are targeting net-zero emissions, typically by mid-century. All of these are achieved, putting global emissions on track for net zero by 2070.
Renewables take starring roles in all scenarios, with solar centre stage. Supportive policies and maturing technologies are enabling very cheap access to capital in leading markets. Solar PV is now consistently cheaper than new coal- or gas-fired power plants in most countries, and solar projects now offer some of the lowest cost electricity ever seen. In the first scenario, renewables meet 80 percent of global electricity demand growth over the next decade. Hydropower remains the largest renewable source, but 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,” said Dr Fatih Birol, the IEA Executive Director. “If governments and investors step up their clean energy efforts in line with our [third] scenario, the growth of both solar and wind would be even more spectacular – and hugely encouraging for overcoming the world’s climate challenge.”
The World Energy Outlook 2020 report also shows that strong growth of renewables needs to be paired with robust investment in electricity grids. 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.
Fossil fuels face varying challenges. Coal demand does not return to pre-crisis levels in the first scenario, with its share in the 2040 energy mix falling below 20 percent for the first time since the Industrial Revolution. But demand for natural gas grows significantly, mainly in Asia, while oil remains vulnerable to the major economic uncertainties resulting from the pandemic.
“The era of global oil demand growth will come to an end in the next decade,” Dr Birol said. “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.”
Global emissions are set to bounce back more slowly than after the financial crisis of 2008-2009, but the world is still a long way from a sustainable recovery. A step-change in clean energy investment offers a way to boost economic growth, create jobs and reduce emissions. This approach has not yet featured prominently in plans proposed to date, except in the European Union, the United Kingdom, Canada, Korea, New Zealand and a handful of other countries.