Pandemic as unknown quantity
News from 2020-11-25 / KfW Development Bank
It is still unclear what the long-term impact of the COVID 19 pandemic and its consequences will be on the further development of the energy sector. At the KfW Development Forum, Brent Wanner presented the World Energy Outlook (WEO) 2020 of the International Energy Agency (IEA). The Senior Energy Analyst explained to more than 200 participants what obstacles still have to be overcome on the way to a zero-emissions energy policy and why solar energy will be the new "king" among generation technologies.
It is still too early to say whether the pandemic is a setback for efforts towards a safer and more sustainable energy system or rather a catalyst to accelerate the pace of change towards cleaner energy. The crisis is far from over and many uncertainties remain. Therefore, Brent Wanner, Senior Energy Analyst at the IEA, made his statements with reservations. The pandemic is the big unknown when it comes to statements about the energy sector. It is clearly visible that energy consumption has collapsed worldwide in the current year. But how quickly will demand rise again? Will the global economy recover gradually or soon? Will a recovery in the economy be sustainable? Since nobody can foresee this, the IEA operates with three different scenarios in its more than 400-page report.
Four scenarios for the future
The first (Stated Policies) Scenario assumes that the current energy policy is maintained and the pandemic is contained as early as 2021. The second scenario (Delayed Recovery Scenario) assumes that the recovery of the global economy and thus of energy demand is significantly delayed. According to this scenario, the previous demand level would not be reached again until 2025. A third scenario (Sustainable Development Scenario) shows what the energy markets would look like if there were a significant shift towards the use of renewable energies and a rapid reduction in greenhouse gas emissions. The fourth scenario goes further. This path is known as "Net Zero Emissions by 2050" (NZE 2050) and is described in more detail for the first time in the current WEO - it requires drastic changes in living conditions and clear political decisions. Although the IEA has also considered different scenarios in its previous reports, Brent Wanner described this approach as "more important than ever" at the Development Forum, which was transmitted by video conference.
This year, global demand for energy has fallen by five percent. As soon as there is a recovery, the crucial question is what share renewable energies will take in the future. How quickly can a phase-out of coal and other fossil energy sources be implemented worldwide?
Solar energy is the new king
Brent Wanner described the increasing importance of solar energy as "very good news". This is now the main driver of growth in all four scenarios of the IEA. This is because, regardless of the forecast development, solar energy is showing the strongest growth of all energy sources. This "new king" of energy sources is now also the cheapest source of electricity. Its use will triple by 2030. The IEA sees the biggest disadvantage of solar energy as its low flexibility. To be able to use solar energy even more efficiently, storage facilities and new technologies that increase the flexibility of an energy system are needed. The expansion of the grid is also a decisive factor in ensuring that energy is always available reliably and at low cost. But the pandemic has also significantly reduced the income of network operators, by 5.5 percent in Germany alone.
Pursuing the zero emissions target more quickly
Brent Wanner's presentation also focused on the need to reduce greenhouse gas emissions quickly and substantially. The goal is to reach zero emissions by 2050. To achieve this, however, not only the EU, UK, New Zealand or even China - which wants to achieve climate neutrality by 2060 - would have to implement their ambitious policies, but the rest of the world would have to be equally ambitious. Here, the IEA sees us still "far from the target". Much more effort is needed here, the Senior Energy Analyst warned. Citizens, business enterprises and financial institutions still need to take "dramatic additional action" to get closer to the zero emissions target by 2050. In detail, Wanner mentioned the rapid increase in the share of e-mobility and a reduction in air traffic.
Influence of the financiers
"Financial institutions have a huge influence," Brent Wanner stressed. "We need more than four times as much investment in clean energy as in 2020 to reach the zero emissions target in 2050. He estimated the financial needs in 2030 at over USD 1.6 trillion instead of the current USD 380 billion to make the NZE 2050 scenario a reality. In particular, the expansion of the generation and network infrastructure in the electricity sector had to be massively promoted. If the current infrastructure is maintained unchanged, global temperatures could rise by 1.65 per cent in the energy sector alone. This would make all climate targets unattainable. "Decarbonisation of energy production is the central prerequisite for achieving the climate targets", Wanner stressed.
Summing up, he said it was still open whether the pandemic as a catalyst would contribute to a global change in energy use or whether it would rather cement long-established ways and behaviours. The increasing share of renewable energies in overall use was positive, but further massive investments in infrastructure were indispensable. The zero-emissions target for 2050 calls for the accelerated development of clean technologies, be it hydrogen use, carbon storage or the further development and cost degression of battery storage.
The role of Africa
The discussion, which was moderated by team leader Peter Hilliges and sector economist Frank Seidel, also addressed the importance of Africa for global change in energy use. Brent Wanner said that Africa's economy is developing rapidly, and energy demand is rising as a result. The continent could therefore do a lot to ensure that the world energy market follows a sustainable path.
Wanner also emphasised the influence of political decisions on which scenario would be realised for the future. "We must keep demand for oil low, that is a key to global energy system transformation", he affirmed. Even a significantly higher CO2 price could "be an extremely effective measure" with immediate impact.