Capgemini has published the 21st edition of its annual study, the World Energy Markets Observatory (WEMO) report, created in partnership with De Pardieu Brocas Maffei and Vaasa ETT. The findings point to global energy demand and Green House Gases (GHG) emissions rising in 2018, threatening progress towards climate change goals.
Despite the continuing growth and falling cost of renewable energy sources, coal, oil and gas remain the cornerstone of growing energy consumption. Energy transition is also threatened by geopolitical and commercial tensions, and the declining level of clean energy investment. Critically, without bolder measures that go beyond existing energy transition policies, the world will very likely fail to meet the objectives of the Paris accord.
1. Greenhouse gases on the rise – climate change goals under threat
Efforts to reduce Green House Gases (GHG) emissions stalled in 2018, with growth of 2% compared to a 1.6% increase in 2017 and no growth in Europe over 2014-16. GHG emissions were up in China by 2.3%, in the US by 3.4% and in India by 6.4%. These increases were driven by booming energy consumption, which grew globally at 2.3% in 2018, nearly twice the average annual growth rate since 2010. Almost 75% of that growth was driven by oil, gas and coal consumption, the highest share since 2013. Worldwide, there was a 4% increase in coal consumption, with a significant growth in coal-fired power generation.
2. Renewables remain the fastest-growing segment, with tech enabling lower costs
In parallel, renewables retained their status as the fastest-growing energy source worldwide, at 14.5% in 2018. Renewable energy sources continue to get cheaper, with the electricity cost of solar photovoltaic and onshore wind declining by 13%, and that of offshore wind by 1%.
However, investment in clean energy is on the decline. In the first half of 2019 it totalled $217.6bn, 14% lower than the same period in 2018. Investment declined sharply in China, down by 39% and more moderately in the US (6%) and Europe (4%). By contrast, in India it rose by 10% to $5.9 billion.
3. By 2040, significant disruptions will be enabled from technology and digital combinations
Renewables energy costs continue to decrease but soft costs (acceptance), intermittency and distribution prevent for the moment these technologies to be definitively more competitive than most of the schedulable electricity generation source.
No energy related technical breakthroughs are expected to be industrialized by the 2040 horizon. However, improvement of existing technologies will continue enabling a lower cost of renewables, electric batteries, Electric Vehicles, and small modular nuclear reactors. In addition, hydrogen for storage and mobility as well as superconductivity should be at the industrial stage cites the report. Hybrid renewable farms will also have expanded.
4. Europe leads the march to low carbon
Comparatively, Europe is proving up to now the most successful region in combatting climate change and implementing energy transition. Its energy demand growth was markedly lower than the rest of the world, growing by only 0.2% in 2018 compared to the global level of 2.3%. Germany leads the way, having seen a 2.2% reduction in its demand.
Europe is on track to meet two of the three core climate objectives set by the EU for 2020: to effect a 20% reduction in GHG emissions compared to 1990, and to ensure renewables comprise at least 20% of energy consumption. National Governments have recently confirmed carbon reduction plans, including in France to cease coal-fired power generation by 2022 and generate 50% of electricity from nuclear by 2035; and in Germany to switch off all coal power plants – which accounted for 37% of its electricity generation last year – by 2038. But the challenge for 2030 and beyond remains difficult to meet.
5. Geopolitical tensions and energy concerns are increasingly interrelated
Both the US and China have leveraged their growing energy market dominance to their advantage in geopolitics. For the US, the growth in shale production has allowed it to overcome dependency on the Middle East: by 2025 it is expected to account for over half of the global growth in oil and gas production (75% and 40% respectively). This emerging oil independence has enabled the administration’s crackdown on OPEC nations such as Iran and Venezuela. China produces 95% of rare earth and metals which are needed to accelerate Energy Transition, a strategic advantage.
6. China and India, giant consumers and CO2 emitters, experience very different positions on energy markets
China has cemented its leadership status as a mature giant market, where energy is provided to all inhabitants, with the development of coal-fired power plants, with 70% of worldwide market share, and installed battery capacity (61%). China leads on the supply of most related technologies (such as fossil fuel, renewables and storage: 7 of the 10 largest worldwide equipment suppliers are Chinese). While its low-cost solar panels are becoming widespread, the report highlights that tomorrow China could also lead on nuclear technology, with 2 EPRs already connected successfully to the grid. China is also responsible for supplying 95% of the global demand for rare earth metals used in high tech applications.
In India, the question is more focused on providing electricity to all (“24/7 Power for all” program).
Both countries will remain highly dependent on coal fired plants for at least 2 decades to meet domestic energy growing demand and will remain large CO2 emitters.
More must be done to meet climate goals
The report found that, given current consumption trends, existing climate change goals are looking unrealistic. However, to create meaningful impact, Governments need to go beyond the energy transition measures they already have in place. The report recommends:
• Raising carbon prices to the level that will boost carbon-free investment
• Increased use and reliance on renewable energy
• Grow Electric Vehicle recharging infrastructures
• Increasing financing for carbon capture, usage and storage RD&D
• Promoting clean coal combustion technologies in power plants
• Dedicating 100% of the proceeds from environmental taxes to energy transition projects (from current level of less than 50%)
• Paving the way on building refurbishment to make them more energy efficient
• Relying on Utilities and financial institutions to participate in the effort
• Starting programs in order to achieve behavorial changes of any individual
The World Energy Markets Observatory is an annual publication by Capgemini that monitors the main indicators of the electricity and gas markets in North America, Europe, Australia, South-East Asia, including for the first time this year China and India, and reports on the developments and transformations in these sectors. The 21st edition, which is drafted mainly from public data combined with Capgemini’s expertise in the energy sector, refers to data from 2018 and winter 2018/2019. Special expertise on regulation and customer behavior has been provided by research teams at De Pardieu Brocas Maffei and VaasaETT.