Capgemini has today published the 22nd edition of its annual study, the World Energy Markets Observatory (WEMO) report, created in partnership with De Pardieu Brocas Maffei, Vaasa ETT and Enerdata.
This year’s edition of WEMO reflects two opposing narratives: in 2019 a continuation of previous trends related to energy transition, renewables and storage technology progress, climate change issues, and energy markets evolution; and the profound industry-wide impact of COVID-19 in 2020 that will reset the baseline and establish a so-called “new normal”.
Key points of the 2020 edition of the World Energy Markets Observatory report include:
· Electricity is widely recognized as the best decarbonization vector, however its consumption growth across the G20 countries slowed down in 2019 (+0.7% vs +3.6% in 2018). China, which accounts for a third of G20 electricity consumption, posted a 4.5% growth, but this was much lower than the average growth observed since 2007 (7.5%per year).
· Energy consumption increased less than in previous years: +0.7% (compared to +2.2% in 2018). It decreased in OECD countries but increased in non-OECD ones. The reduction in energy intensity is regular at around -1.5 to -2 points per year which reflects energy effectiveness progress.
· Oil consumption grew by 0.9 million barrels per day (b/d) (or 0.9%) slightly lower than the 10-year average of 1.3%. The growth was weaker than expected as new vehicle efficiency measures have started to weigh on transport fuel consumption.
· Renewables:
o Onshore wind-generated electricity increased by an estimated 12% in 2019, remaining the largest nonhydro renewable technology and generating almost as much as wind offshore and solar together.
o China’s onshore wind capacity expanded from 19.0 GW in 2018 to 23.8 GW in 2019 as the government lifted development bans in certain regions in response to the decrease of electricity curtailment levels reflecting better grid balancing conditions
o China is strengthening its position as a leader in offshore capacity additions with around 2 GW of new installations in 2019, followed by the UK (1.6 GW) and Germany (1.1 GW). In the US, developers have proposed multiple projects in four different states (Maryland, New York, New Jersey, and North Carolina).
o During the COVID-19 pandemic renewables developers have experienced supply chain disruptions, and lockdown measures have slowed construction and permitting activity resulting in a reduction of short-term capacity additions mainly in 2020 but also the following year.
o Batteries: The cost of battery storage has fallen sharply (by 19% per year over the past 10 years) to reach a market average at $156/kWh range of $175-234/kWh. According to BNEF’s forecast, prices are projected to fall to around $100/ kWh by 2023 increasing electrification of the economy
o Mega-factories are expanding: As of December 2019, the number of lithium ion battery mega-factories in the pipeline has reached 115 plants, (88 of which are planned in China) amounting to 564 GWh capacity addition to a global total of 2,068.3 GWh or the equivalent of 40 million EVs by 2028.
o GHG emissions: Energy-related global GHG emissions have decreased year on year by 0.4% for the first time since 2009 with contrasting situations between non-OECD countries where GHG emissions have increased by 1.3% and OECD countries where they decreased by 2.8%.
· What decisions need to be made to get on track to meet climate change objectives?
o Investment decisions: Hydropower is the largest source of low-carbon electricity worldwide and nuclear power the second. Together, they represent 70% of low carbon electricity generation. In advanced economies nuclear power is the largest low carbon source of electricity but in those countries its future role will decrease as governments trying to get green parties’ support are prematurely phasing out nuclear plants
o Most post-COVID stimulus plans include incentives for building efficiency improvements. In addition to increased funds, simplified administrative approaches addressing shortages of skilled providers, and increasing decision makers’ confidence, are crucial. In contrast, measures such as switching to biofuels, or adding CCUS to a coal-fired power plant, would reduce emissions but would also generate significant additional cost over their lifetimes.
o Regulatory Decision: In China, the emphasis of the 13th plan on environmental development was impressive with measures related to the electric power development and sustainable energy supply. Emissions reductions goals were partially achieved by 2018 as carbon intensity decrease reached more than 45% of the 2020 goal, while the use of non-fossil energy has almost hit its 15% goal. However, after a dramatic decline in 2016- 2018, 2019 saw an increase of 5% in coal utilization. Let’s not forget that coal is a domestic Chinese resource and the new countries’ nationalistic approach could explain this trend change.
o Two main regulatory schemes exist to limit CO2 emissions: The Emissions Trading Scheme and the carbon tax. Of the 34 OECD members (out of 37) who have implemented one or other scheme, 45% have an ETS system, 39% combine this with a carbon tax, and 8% impose the carbon tax alone.
· Global methane emissions have risen nearly 10% over the past two decades, resulting in record-high atmospheric concentrations of this powerful greenhouse gas. Covid-19 and its consequences: According to OECD scenarios, with one worldwide pandemic wave GDP would contract by 6% in 2020 while this contraction would reach7.6% in the case of a second wave. The COVID-19 crisis has severely impacted on the transportation sector with a strong decrease in all travel activities. Some of them are recovering post lockdown, others such as aviation are affected in the long term. Work was also transformed by the implementation of social distancing rules and by the need to operate teams at a distance. All industrial and tertiary activities were negatively affected during the period. Consequently, all types of energy consumption dropped significantly
· A greener post COVID-19 society? In many countries, politicians have announced that the post COVID- 19 world will be “greener”. This is also their citizens’ aspirations even if after the crisis, worries about health, employment and individual revenues are stronger and viewed as first priorities. In many countries and regions, huge stimulus plans are being adopted.
· The period studied by this 2020 edition of WEMO is exceptional. It had two distinct phases. During 2019, lower economic growth and the implementation of certain energy transition measures led to only minor progress towards achieving climate objectives. Despite the decline in emissions from the energy sector, global emissions reached an all-time high. The good news is that the costs of renewable energies and electricity storage by batteries continued to drop dramatically and this should continue. However, our planet remains far from reaching global climate objectives: Extension of the 2019 trajectory would have led by 2050 to a global temperature increase of 3.1-3.7° C – well above the 1.5-2° C desired by international agreements.
· During the COVID-19 pandemic, lower electricity demand due to lockdowns, combined with favorable weather conditions, enabled shares of renewable electricity to increase significantly.
· In India, the same circumstances of reduced demand and favorable weather enabled a significant reduction in the share of coal-based electricity production from 75% to 60% while the US saw renewable sources become the second biggest electricity producers after gas power plants
· India’s energy related CO2 emissions continued to rise to 2,480 million tons of CO2 (MtCO2) in 2019. However, the government has adopted several initiatives to address this issue. For example, in 2019, the Ministry of Environment, Forest and Climate Change (MoEFCC) announced the National Clean Air Program (NCAP), which aims to reduce particulate matter (PM2.5 and PM10) by 20–30 percent by 2024
· Coal continues to dominate the Indian energy system in 2019, despite a steady increase in the share of renewables. Coal is expected to represent 57 percent of total electricity generation in India by 2040 — a substantial drop as compared to the 73 percent share in 2019. Grid connected renewable electricity capacity reached 84 GW in 2019, as driven by onshore wind (~38 GW), solar (~35 GW), and the remainder coming from small hydro and bio-power. If large hydro is also considered, the figure reaches almost 130 GW—more than twice the 2010 renewable capacity.
· Similar to many other parts of a world, lower energy consumption during the lockdown period related to COVID-19 as well as a decreased share of coal in the electricity mix led to the first decrease in CO2 emissions in four decades in India. Though temporary, India experienced a 15 percent decrease in March and a 30 percent decrease in April 2020.
· The economic crisis put renewable energy investments at risk in India and recovering from the economic crisis is going to be a real challenge for distribution companies. As retail tariffs are structured on a variable cost basis, and since power demand plummeted during the lockdown, they will face huge working capital issues. Their annual losses are expected to reach US$15 billion.
· New energy projects will face energy companies' financial liquidity issues, which could be a serious threat to new energy investments, including in renewables. In addition, India will face supply chain and strategic capability issues, with 88% of solar modules coming from China.
· On the other hand, the renewed push for the “Make in India” initiative may boost coal-based generation, which is mostly domestic
For further information please refer to the attached press release as well and the report can be accessed here: https://www.capgemini.com/
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