Monday, February 19, 2018
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We’re getting closer to completing the energy transition

Energy is a linchpin of economic prosperity, with energy security, reliability and affordability key preconditions for sustainable growth. Is today’s energy system evolving in a way that ensures these preconditions?

Today, the global energy scene is in a state of flux, with a series of large-scale shifts transforming the outlook for the global energy sector. These shifts include technological advances – as seen with the rapidly falling costs for solar PV or the US shale revolution – as well as economic, demographic and policy changes as China moves to a new economic model and a cleaner energy mix, and as India accounts for an ever-larger share of the global growth in demand.

Underlying each of these shifts is a set of three parallel policy goals facing the global community: combatting the worst effects of climate change; providing universal energy access; and reducing air pollution from energy. The choices that are made today about how to address these challenges – both in terms of policies and investments – will be felt for decades, with implications rippling around the globe.

The good news is that there is no contradiction between achieving climate goals, universal access and clean air quality. This is important as energy-sector development pathways will increasingly need to move hand in hand with economic development, social priorities and environmental needs. Further, focusing on a specific goal in isolation creates a risk of locking in an energy sector pathway that impedes or increases the cost of achieving other goals.

In the IEA’s World Energy Outlook 2017, we have shown how policy-makers can achieve the three objectives simultaneously, with universal access achieved by 2030, and by 2040 both energy-related CO2 emissions and premature deaths from air pollution halved. Perceived trade-offs between these objectives are either small or non-existent.

Already, important progress has been made. The number of people estimated to be without access to electricity fell below 1.1 billion in 2016, and the pace of providing access has accelerated. Yet, this means that around 14% of the world’s population still lacks access to electricity. In addition, some 2.8 billion people still have no access to clean cooking facilities. Meanwhile, air pollution is responsible for around 6 million premature deaths every year.

Clearly there’s work to be done, and it’s going to require investment – in fact an additional $9 trillion would be needed through 2040, around 15% more than the capital investment needs of the WEO central scenario. There is also an important reallocation of investment flows to improve the energy efficiency of end-use sectors, along with further investment for the scale-up of key technologies, such as electric cars, and the direct use of renewables for heat supply in the industry and buildings sectors.

The good news is that in many countries we’re already seeing strong deployment and impressive cost reductions of key technologies such as LEDs, wind and solar PV, and electric vehicles. Solar PV prices have been cut by half in just three years, and we forecast another halving by 2020. But despite this tremendous progress, energy efficiency, renewables and other clean energy options, including carbon capture use and storage (CCUS), still require more focus on robust policy frameworks and appropriate market design to reduce uncertainty and attract the necessary investment.

In fact, there is a real risk of underinvestment across almost all energy technologies – and it’s not due to a lack of capital. Markets are awash with capital. Rather it’s policies that need to step up and bridge the gap between finance availability and energy investment needs. Governments have always played an important role in energy investment, but this role has been increasing due to both geography and technology.

Investment is shifting: first towards emerging markets where state-owned companies play an important role; and second towards electricity and renewables – both heavily regulated sectors. The interaction between governments, industry and civil society is more important than ever. For example, we estimate that over two-thirds of the world’s energy consumption is not currently subject to efficiency standards or mandatory policies. This represents a tremendous opportunity, as energy efficiency is responsible for halting the growth in demand in many countries and halting the growth in energy-related emissions globally, while also promoting energy security and economic growth.

The energy sector presents exceptional opportunities for governments and investors. Strong policies and innovation can make the difference for energy security, climate change, air quality and universal access to modern energy services in parallel – in short, building a secure, affordable, sustainable energy system that is available to all.

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