Global Energy Perspective 2023: Power outlook

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The Global Energy Perspective 2023  models the outlook for demand and supply of energy commodities across a 1.5°C pathway, aligned with the Paris Agreement, and four bottom-up energy transition scenarios. These energy transition scenarios examine outcomes ranging from warming of 1.6°C to 2.9°C by 2100 (scenario descriptions outlined below in sidebar “About the Global Energy Perspective 2023”). These wide-ranging scenarios sketch a range of outcomes based on varying underlying assumptions—for example, about the pace of technological progress and the level of policy enforcement. The scenarios are shaped by more than 400 drivers across sectors, technologies, policies, costs, and fuels, and serve as a fact base to inform decision makers on the challenges to be overcome to enable the energy transition. In this article, we dive into the investments and advancements needed to both meet the world’s growing power demand and strive for a decarbonized energy system.

Power demand is projected to climb across scenarios due to several factors that are likely to differ by region, including the growth in emerging markets’ energy needs, electrification across the global economy (particularly in transport), and rising green hydrogen demand. The share of renewables in the global power mix could more than double in the next 20 years, and a boost in flexible capacity may be needed to ensure security of supply.

While significant growth in renewables is projected, clean firm power generation1 (including from CCUS, nuclear, and hydrogen) is projected to increase in the long term across scenarios.

Obstacles may, however, hinder the pace of some renewables build-out and trigger price spikes, creating the need for other technologies, including other renewables (such as geothermal) and non-renewable alternatives (such as nuclear). Developing economies may require economic support to bolster capacity build-out, and transmission and distribution (T&D) investments would need to increase across the globe. As the cost of power generation declines due to a projected rapid cost decline for renewables in certain regions, the share of grid costs in total delivered power costs is projected to grow, and customers in many places will potentially not see power prices decline.

Global power demand is projected to grow across sectors in all scenarios

Power demand is expected to increase by 3 to 4 percent per annum due to growth in emerging markets' energy needs and global electrification.

Demand growth is driven by different sectors across geographies

China, India, and North America are projected to represent more than half of global power demand and growth.

The share of renewables in the power mix is projected to more than double in the next 20 years

Renewables are projected to make up the largest share of the new generation power mix.

Flexible assets may be needed to meet peak demand in a more weather-dependent net-zero system

To ensure reliability, flexible capacity is projected to need to more than double by 2050.

Africa, India, and the Middle East are projected to need the largest increase in renewables deployment

A significant capacity increase is projected in all scenarios, with the largest increase seen in renewables.

Increased transmission and distribution investments are needed to support the outlook

The power sector is projected to require significant investments, with T&D investments outgrowing renewables by 2030.

While the cost of power generation is projected to decline, the share of grid costs is projected to grow

Consequently, the share of grid cost in total delivered power cost is expected to increase across scenarios and regions.

To manage a system which is moving more toward fixed costs, updates to power market designs may be needed

In most markets today, conventional assets (such as coal, gas, oil, nuclear, and hydro) provide energy in the market as well as firming capacity. With the further expected growth in solar and wind capacity, the role of conventional plants may be decoupled, moving from providing both the primary source of energy and firm capacity to largely providing firming and flexibility in the system. As a marginal market price is projected to correlate with short-run marginal costs across the system, additional remuneration could be needed for asset types to remain profitable to enable their continued operation and especially to fund the technologies required to abate emissions from these operations. By 2040, up to 15 percent of revenues from nuclear assets, 50 percent of revenues from gas assets, and 65 percent of revenues from coal assets may need to come from market mechanisms other than marginal energy production payments for these technologies to remain viable in order to meet remaining transition demand.

Renewable assets with fixed (non-dispatchable) outputs may be subject to correlation effects that drive down prices during periods of high wind and solar production. This will tend to decrease the capture price of those technologies, where variable prices no longer link to total lifecycle cost of production. Out-of-market payments, such as contracts for difference or power purchase agreements, which often include renewable energy certificates which show that a given plant produces renewable power, will likely continue to be needed to secure financing.

Dispatchable thermal capacity, such as gas plants, are more likely to maintain positive returns in geographies with lower fuel costs, such as in the United States. Similarly, clean technologies, such as CCUS, are expected to leverage a variety of market payments as well as support initiatives to maintain profitability.

Regarding older conventional technologies, coal is likely to be largely retired in the near future, while other unabated carbon-emitting technologies will likely run less frequently than they do at present. Nevertheless, as renewable power is ramped up, managing conventional technologies still in use to minimize their environmental impact could be an important concern.

Revenue mechanisms could include capacity markets and payments, subsidies, regulated prices, active markets for clean energy certificates, and contracts for difference to limit uncertainty. Some of these mechanisms already exist in markets globally.

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