The world continues to electrify, with power consumption growing strongly.
In the ET scenario, around three-quarters of the entire growth in primary energy over the Outlook is used for power generation, with around half of all primary energy absorbed by the power sector by 2040.
Almost all of the growth in power demand stems from developing economies, led by China and India. Demand growth in the OECD is much smaller, reflecting both slower economic growth and a weaker responsiveness of power demand to economic growth in more mature, developed economies.
The mix of fuels in global power generation shifts materially, with renewables gaining share at the expense of coal, nuclear and hydro. The share of natural gas is broadly flat at around 20%.
Renewables account for around two-thirds of the increase in power generation, with their share in the global power sector increasing to around 30%. In contrast, the share of coal declines significantly, such that by 2040 it is surpassed by renewables as the primary source of energy in the global power sector.
The slower growth of power demand in the OECD slows the speed with which renewables can penetrate since it is hard for a new renewable power station to compete commercially against an existing facility. In the ET scenario, there is some substitution of renewables for coal in the OECD, but the extent of this shift is limited by the pace at which existing power stations are retired.
In contrast, the strong growth of power demand in developing economies means there is greater scope for renewables to increase. But in the ET scenario, renewables do not grow sufficiently quickly to meet all of the additional power demand, and as a result coal consumption also increases.
In the ET scenario, limits on the pace at which non-fossil fuels can grow results in a trade-off between the growth of power and the pace of decarbonization. Some countries and regions, such as China and Africa, are able to grow non-fossil fuels relatively rapidly and so achieve high levels of decarbonization. In contrast, in some other regions, limits on the extent to which non-fossil fuels can be increased commercially, means there is greater reliance on coal, and so less decarbonization.
The outlook for renewables is underpinned by continuing gains in technology, but is also affected by a number of other factors.
In the ET scenario, the costs of wind and solar power continue to decline significantly, broadly in line with their past learning curves.
To give a sense of the importance of technology gains in supporting renewables, if the speed of technological progress was twice as fast as assumed in the ET scenario, other things equal, this would increase the share of renewables in global power by around 7 percentage points by 2040 relative to the ET scenario, and reduce the level of CO2 emissions by around 2 Gt.
The impact of these faster technology gains is partly limited by the speed at which existing power stations are retired, especially in the OECD.
If, in addition to faster technological gains, policies or taxes double the rate at which existing thermal power stations are retired relative to the ET scenario, the reduction in emissions is doubled.
This suggests that technological progress without other policy intervention is unlikely to be sufficient to decarbonize the power sector over the Outlook. The ‘Lower carbon power’ scenario described below considers a package of policy measures aimed at substantially decarbonizing the global power sector.
The extent to which the global power sector decarbonizes over the next 20 years has an important bearing on the speed of transition to a lower-carbon energy system.
In the ET scenario, the carbon intensity of the power sector declines by around 30% by 2040. The alternative ‘Lower-carbon power’ (LCP) scenario considers a more pronounced decarbonization of the power sector.
This is achieved via a combination of policies. Most importantly, carbon prices are increased to $200 per tonne of CO2 in the OECD by 2040 and $100 in the non-OECD – compared with $35-50 in OECD and China (and lower elsewhere) in the ET scenario.
Carbon prices in the LCP scenario are raised only gradually to avoid premature scrapping of productive assets. To help support carbon prices, especially as their impact is building, a number of additional policy measures are taken:
The carbon intensity of the global power sector in the LCP scenario declines by over 75% by 2040 relative to the ET scenario. As a result, total CO2 emissions in the LCP scenario fall by 25% by 2040, compared with an 7% increase in the ET scenario.
The most significant factor underpinning this decarbonization is the higher carbon price, which accounts for almost half of the carbon reduction. This is supported by the other measures, especially during the first half of the Outlook as carbon prices gradually rise. The limit on the speed with which carbon prices can be increased without leading to scrapping of productive assets implies other policy measures are needed to achieve significant progress over the next 20 years.
Renewables more than account for the entire growth of power generation in the LCP scenario, with their share of the global power sector increasing to around 50% by 2040.
The share of natural gas in power is broadly unchanged from its current level, although by 2040 almost half of all gas-fired generation is supported by CCUS. Gas with CCUS is more competitive than coal with CCUS due to the greater carbon content in coal. In total, CCUS captures 2.8 Gt of CO2 emissions by 2040 in the LCP scenario.
Coal is the main loser in the LCP scenario, with its share declining from around 40% in 2017 to less than 5% by 2040.