IEA: COVID-19 could result in a global energy rejig in favour of renewables

The International Energy Agency’s outlook for 2020 points to a potentially accelerated energy transition to renewables

The pandemic has sparked a two-pronged crisis – one relating to health and wellbeing, and the other to the economy. It is also resulting in a rethink on several fronts, one of which is energy consumption and its impacts.

Two key themes that emerged in the International Energy Agency’s World Energy Outlook 2020 were the impact of COVID-19 on the energy sector, and whether it will result in an accelerated energy transition. According to the IEA, the two are interlinked and will depend on how long the pandemic continues, and “the extent to which energy and sustainability are built into recovery strategies”. 

The IEA estimates global energy demand to fall by 5% in 2020, with energy-related CO2 emissions forecast to fall by 7%. At the same time, investments in the energy sector are expected to record an 18% drop. The global economy is in a recession, adversely impacting energy demand and thousands of jobs associated with the energy sector.

This pandemic has caused more disruption to the global energy system than any other event in history, according to the IEA. This provides the world with an opportunity to accelerate the clean energy transition and reach its climate goals, but much will depend on how governments respond to the crisis.

Industries have been pushed to acknowledge the need to shift to sustainable energy sources. Renewable energy sources have been making steady gains as a share of total energy output and this trend is expected to continue. But there is still a long way to go.

The pandemic-induced economic slowdown is going to deeply impact the energy landscape in 2020. Oil demand, for instance, is expected to fall by 8% this year, while coal use is estimated to decline by 7%. This is in sharp contrast to the increase in renewables contribution (0.9%), despite a 5.3% decline in global energy demand.

Four possible scenarios

The report compares four different scenarios that estimate how energy demand may evolve over the next decade leading to 2030. These are based on the length and the severity of the pandemic, its economic and social impacts, and how governments and policymakers respond to the challenges faced, the IEA noted.

Stated Policies Scenario (STEPS). This scenario assumes COVID-19 will be brought under control by 2021 and the global economy will bounce back to 2019 levels. It includes all announced policy intentions and targets, provided they are backed up by measures for realisation. In this scenario, renewables make up 90% of global energy demand growth over the next two decades, driven by solar; and coal’s share of global energy demand falls under 20% for the first time in modern history. 

Delayed Recovery Scenario (DRS). This scenario is designed on similar policy assumptions as STEPS but assumes longer-lasting damage to the global economy owing to a prolonged pandemic, with it returning to its pre-crisis levels only in 2023. In such a scenario, energy demand reaches pre-crisis levels in 2025. Oil demand stays under 100 mb/d. There is behaviour change observed in this scenario, but there’s still no clear indication of oil demand peaking. 

Sustainable Development Scenario (SDS). A surge in clean energy policies and increased investment in green energy puts the energy system on track to achieve sustainable energy goals, including the Paris Agreement. The assumptions relating to public health and the economy are the same as in STEPS. In this scenario, we would have already reached the “definitive peak year” for global CO2 emissions in 2019. By 2030, emissions in this scenario are almost 10 Gt lower than in STEPS, and the air is much cleaner than even that experienced in the COVID lockdown this year.

Net Zero Emissions by 2050 case (NZE2050). An extension of the SDS scenario, NZE2050 assumes that SDS assumptions are met by 2050, and global emissions are on track for net zero by 2070. But achieving the goals of this scenario requires “significant further acceleration” in clean energy technology deployment and a range of behavioural changes.

The renewables surge

In each of the four scenarios described above, renewable energy assumes great importance, and in particular solar energy. Over the past few years, there has been a strong focus on the development of technologies that can make solar power cheaper and more feasible. They have been coupled with supportive policies and this has resulted in access to cheaper capital than before, which in turn has resulted in solar PV becoming cheaper than new coal- or gas-fired plants, and solar projects offering some of the cheapest electricity ever seen.

Over the next decade, renewables will meet 80% of electricity demand globally in the SDS, according to the IEA. While hydro will continue to be the largest renewable source, the gap will be closed by solar, which is expected to be the main source of growth, and followed by onshore and offshore wind.

According to Fatih Birol, IEA executive director, solar will be “the new king of the world’s electricity markets”.

“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 – and hugely encouraging for overcoming the world’s climate challenge,” he added.

However, this growth in renewables will be possible if it is accompanied with strong investment in electricity grids, failing which the grids may not be able to handle power transmission, impacting electricity supply reliability and security.

A more sustainable future

In the Sustainable Development Scenario, which shows how to put the world on track to achieving sustainable energy objectives in full, the complete implementation of the IEA Sustainable Recovery Plan moves the global energy economy onto a different post-crisis path. Along with the rapid growth of solar, wind and energy efficiency technologies, the next 10 years would see a major scaling up of hydrogen and carbon capture, utilisation and storage, and new momentum behind nuclear power.

“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,” according to Mr Birol.

“Only faster structural changes to the way we produce and consume energy can break the emissions trend for good. Governments have the capacity and the responsibility to take decisive actions to accelerate clean energy transitions and put the world on a path to reaching our climate goals, including net-zero emissions,” he added.

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