13/11/2018 Electricity

International Energy Agency

World Energy Outlook 2018

World Energy Outlook 2018 examines future patterns of a changing global energy system at a time of increasing
uncertainties and nds that majorThe gold standard
transformations of for
are underway energy analysis
the global energy sector. Across all regions and fuels,
policy choices made by governments will determine the shape of the energy system of the future.

Explore: Overview Scenarios Fuels Themes Q&A Commentaries Data

Special focus on: Electricity Producer economies Oil & gas innovation

Introduction

The electricity sector is witnessing its most dramatic transformation since its birth more than a century ago .
For that reason, the World Energy Outlook features a special focus on electricity this year to examine what could
lie ahead for global power systems.
Dr Fatih Birol, IEA Executive Director

Electricity is the fastest-growing source of nal energy demand, and over the next 25 years it continues to
outpace energy consumption as a whole. The power sector now attracts more investment than oil and gas
combined – necessary investments as the generation mix changes and ageing infrastructure is upgraded.

The global electricity supply is also being transformed by the rise of variable renewable sources of
generation such as wind and solar PV. While this puts electricity at the forefront of the clean-energy
transitions, providing access to the nearly 1 billion currently deprived, helping cut air pollution and meet
climate goals, these changes will require a new approach to how power systems are designed and how
they operate. Otherwise, rising electri cation could result in less secure energy systems, underscoring the
urgent need for policy action in this critical sector.

Key Findings

Electri cation of end uses is a promising pathway to decarbonising energy use

Electricity today accounts for 19% of total nal consumption of energy, a share that is set to increase as
demand growth for electricity outpaces all other fuels. In the New Policies Scenario, the share reaches 24%
in 2040, a far cry from full electri cation. While there is considerable scope to push electri cation beyond
this level, not all end-uses can be readily electri ed, such as high-temperature heat demand in industry,
long-haul aviation and shipping, where electri cation is harder to achieve due to either economic or
technical barriers.

Annual growth in total nal consumption by fuel (left) and share of electricity (right) in the New Policies Scenario

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60

40

Mtoe

20

-20
2017-25 2025-40

Coal Oil Gas

Electricity District heating Renewables
Traditional use of biomass

© OECD/IEA

30%
Share of electricity in TFC

20%

10%

0%
2017 2025 2040

Share of electricity in TFC

© OECD/IEA

But electricity growth is a tale of two stories driven mostly by developing economies

Developing economies will account for the largest share of new demand, driven by rapid economic and
population growth, the need for more goods and services and increasing policy push towards
electri cation. Motor systems used in Chinese industry alone will account for almost a fth of the increase
in global electricity demand to 2040. A similar increase is expected from growing needs for cooling, with the
number of home air conditioners in developing economies rising to 2.5 billion units, up from about 600
million today. Accelerating uptake of electric vehicles and electric water heaters could see demand growth
in developing economies increase even more rapidly.

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Global electricity demand by region in the NPS

40 000
Historical New Policies Scenario

30 000
TWh

20 000

10 000

0
2000 2010 2017 2030 2040

United States European Union Japan Other advanced economies China India Other developing economies NPS

© OECD/IEA

Meanwhile, in advanced economies, electricity growth is muted

Continued e ciency improvements in lighting, refrigerators, motors, etc. result in electricity demand
staying relatively at in advanced economies. Electricity gaining ground in providing electro-mobility and
heat for homes, o ces and factories provides a lifeline for growth. However, even widespread
electri cation will not be su cient to drive a major increase in electricity demand in these regions, as the
higher e ciency of electric cars and heat pumps reduces the additional amount of electricity needed for
transportation and for heating our homes. For example, : pushing EVs to 100% of new car sales in
advanced economies by 2040 (compared to 1% today) would increase electricity demand growth to an
average of 1.1% annually, as EVs are more than twice as e cient as conventional cars and stock turnover
low.

Introducing the Future is Electric Scenario (FiES)

Policy choices will have a great impact on how the electricity sector develops in the future, especially what
key levers are used to boost electricity demand growth. Policies and regulations play a determining role in
unlocking higher electri cation: encouraging e orts to accelerate the rollout of electric charging
infrastructure for vehicles, simplifying switching to electric heating in both buildings and industry, or
pushing to achieve universal access to electricity or improving standards of living.  

The analysis this year introduces the Future is Electric Scenario (FiES) to examine what would happen to
electricity demand if economic opportunities for electri cation were maximized. For instance, in the FiES by
2040, almost half of the car eet goes electric; electricity makes rapid inroads into heating needs for
buildings and industry; a digital economy connects nearly all consumer devices and appliances; and full
electricity access is achieved.

Electri cation of end-uses in the Future is Electric Scenario and the New Policies Scenario

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Buildings
Level of household uptake (2040)
100%

75%

50%

25%

0%
g

ity
ce
tin

ric
n
ea

ia

t
ec
rh

pl

el
ap
fo

to
d
ity

le

ss
ric

ab

ce
t

en

Ac
ec
El

k
or
w
et
N

Industry
Electri cation of end uses
7.5% 60%

6% 48%

4.5% 36%

3% 24%

1.5% 12%

0% 0%
ia

l
ee
ea
on

st
H
m

in
Am

F
EA

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Transport
Electric vehicle eet in 2040
1.25 10

1 8

million vehicles
billion vehicles
0.75 6

0.5 4

0.25 2

0 0
Vs

-W

s
k

se
uc
LD

Bu
2/

Tr

2017 NPS FiES

© OECD/IEA

Note: EAF = electric arc furnace, LDV = light-duty vehicles, 2/3-W = two/three-wheelers; Trucks = heavy-duty trucks only

A strong policy push to electrify end uses sees electricity demand increase to nearly 7 000 TWh above the
New Policies Scenario in 2040, an increase equivalent to the electricity demand of China and India
today. The biggest potential for demand growth lies with electrifying transport and heat. The deployment
of EVs is aided by their improving competitiveness with internal combustion engine (ICE) vehicles in most
major markets, but would require adequate infrastructure roll-out.

The implications for energy and the environment are signi cant. Oil demand would peak by 2030, and
expenditures for electricity would overtake that of oil products before 2035. Electri cation decreases air
pollutant emissions, reducing premature deaths by nearly 2 million relative to the NPS.

However, while electri cation provides an avenue to decarbonise end-uses, overall energy sector carbon
emissions will keep growing under this scenario without stronger e orts to decarbonise electricity supply.
Electri cation alone is not su cient to put the world on track to meet climate goals; this would require a
more comprehensive energy system strategy. Paired with a much more widespread deployment of
renewables and other low carbon sources of electricity, electri cation can help follow a more sustainable
trajectory.

Change in electricity demand by sector in the FiES relative to the NPS, in 2040 (left) and energy related CO2 emissions
by scenario (right)

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45 000

40 000

TWh
35 000

30 000
NPS Buildings Transport Industry FiES

40

35

30
Gt

25

20

15
2015 2020 2030 2040

NPS FiES FiES with power sector decarbonisation SDS

© OECD/IEA

Solar PV and natural gas are reshaping power sector capacity …

Thanks to falling costs and favourable government policies, solar PV capacity is set to surge – overtaking
wind by 2025 and overtaking coal in the mid-2030s to become the second largest installed capacity globally,
after gas. Gas- red capacity overtakes coal well before 2030, as countries look to address emissions and air
pollution concerns, while meeting exibility and adequacy needs.

Installed power capacity in the NPS Power generation in the NPS

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12 500
3000
Historical
Historical New
NewPolicies
PoliciesScenario
Scenario

10 000

2000
7500
TWh
GW

5000
1000

2500

00
2000
2000 2010
2010 2020
2020 2030
2030 2040

Coal Coal
Gas Oil
Gas Nuclear
Oil Nuclear
Wind Wind
Solar PV SolarOther
PV renewables
Other renewables
Hydro Hydro
Battery storage

© OECD/IEA

… which also means that the power generation mix is evolving (though more slowly
than capacity)

Coal remains largest source of electricity generation, though its share falls substantially over time and gas
nearly closes the gap. Renewables increase of around 25% up to total 41% in 2040. Hydro remains the
largest source of low carbon electricity, followed by wind power and solar PV.

Nuclear increases moderately, with a signi cant geographical shift. Traditional nuclear champions will see a
wave of retirements to 2040 as the industry faces challenges in the leading markets of the United States,
Europe and Japan. Meanwhile, a nuclear expansion is led by China, India and Russia in developing nations.

Nuclear power generation capacity in advanced and developing economies in the NPS
200

150
GW

100

50

0
United States European Union Japan China Russia India

2040 Potential retirements from 2017 2017 Additions to 2040

© OECD/IEA

Flexibility will become the cornerstone of electricity security …

Building exible power systems to accommodate the transition to more electri ed, low-carbon and
digitalised electricity systems of the future will be critical to ensure reliability. Government policies need to
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Flexibility needs are set to increase due to the evolving nature of electricity demand and supply; driven by
electri cation and other changes in the way electricity is used on a daily basis, greater exibility may be
needed to manage peaks in demand. The rising shares of wind and solar PV increase system exibility
needs to manage the variability of their output.

System exibility needs can be characterised by a scale of six phases of integration. Moving to higher
phases generally increases the need for dedicated practices, policies and investments to manage power
systems. For systems in Phase 1 and 2, existing sources of exibility are capable of meeting any exibility
needs. Beyond these initial phases of integration, targeted investment in advanced exibility measures is
needed to manage the integration of variable renewables. The phase a country is in depends not only on
the share of variable renewables in annual generation, but also is in uenced by existing exibility resources
and the match between solar PV, wind and demand pro les. Looking ahead, some countries are set to
move into uncharted territory where regular periods of excess supply could become the norm.

As countries move up the phase scale, increased demand for exibility will be met by a range of sources.
Today, power plants and transmission interconnections provide the vast majority of exibility in power
systems. Going forward, demand-side response and energy storage technologies, including battery
storage, will have a growing role in ensuring energy security.

Variable renewables share of generation and phases of integration in the NPS

Phase 6
All sources of
flexibility needed
Phase 5

Phase 4
Targeted investment in
flexibility needed
Phase 3

Phase 2
Mobilise existing
power system flexibility
Phase 1

0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50% 55% 60%
Wind and solar PV share of generation

India China EU UK Germany US 2017 2030

© OECD/IEA

Investments are needed in the right place, at the right time to keep the lights on

Power sector investment needs to be timely and e cient to ensure electricity security. Government policy
will play an integral role in all markets. In competitive wholesale electricity markets, the rising share of
variable renewables puts downward pressure on price signals needed for investment, and market reforms
may be needed to secure su cient levels of investment to keep the lights on.

Power plant investment in competitive markets and under regulated frameworks in the NPS

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2018-25
6.4 trillion dollars

2026-40
13.5 trillion dollars

Wholesale Distributed generation Regulated networks Regulated/contracted

market pricing (retail/regulated tari ) and battery storage utility scale generation
© OECD/IEA

In heavily regulated markets, the risk of overinvestment continues, as capacity currently under
construction, or in the planning phase, is set to outpace new needs for the system, threatening the
a ordability of electricity for more than a billion households. At today’s levels, for example, excess capacity
would cost households in developing economies close to $15 per year.

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Planned capacity additions and system needs to 2030 in selected regulated markets in the NPS
600

500

400
Firm capacity (GW)

300

200

100

0
China India Middle East Southeast Asia Other developing Asia North Africa

Excess in 2017 Under construction Planned Meet demand growth to 2030 Replace retirements

© OECD/IEA

Proper government policies - and market designs - will be critical

The risk of underinvestment in competitive electricity markets threatens the security of electricity supply.
Without concerted action and market reform, the lights could icker and go out on some advanced
economies. In re-orienting electricity supply, policy makers must also look beyond technology costs,
considering also the value of all the services provided to the system.

Downward pressure on wholesale electricity prices also reduces revenues to all sources of generation. To
close the widening gap between energy sales revenue and total generation costs, the need for additional
revenue streams is growing and can be delivered through capacity and exibility markets. For example,
energy sales have covered a falling share of total generation costs in the European Union, and this looks to
become more pronounced in the future unless CO2 prices rise to above $30 by 2030.

Share of long-run generation costs covered by energy sales in the European Union in the NPS
100%

75%

50%

25%

0%
2010 2017 2025 2030

Energy sales Rising CO2 price Other revenue needed

© OECD/IEA

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