The Future of Energy


The Future of Energy

Achieving net zero emissions by 2050 will require nothing short of a complete transformation of the global energy system. The energy sector is the source of around three-quarters of greenhouse gas emissions today and changes here will be pivotal to averting the worst effects of climate change.

The message is clear. Over the course of three reports, the Intergovernmental Panel on Climate Change (IPCC) has stated that humans are “unequivocally” responsible for rising temperatures and that we are having widespread, potentially irreversible, impacts on global ecosystems. More recently, the IPCC also highlighted that the world’s target of holding global warming to 1.5°C is still within reach, but only if rapid and deep cuts to greenhouse gas emissions are made.

 

The latest IPCC report indicates that to have a 50% chance of staying under 1.5°C of global warming, greenhouse gas emissions need to peak in the next three years and be cut by 43% by 2030 (from 2019 levels). If we climb above the 1.5C threshold the consequent climate change becomes far more catastrophic. Yet, without stronger action from governments, corporates and individuals, global emissions are projected to keep rising beyond 2025. The current median trajectory is for a planet that will exceed 2°C warming by 2050 and have warmed 3.2°C by 2100.

 

While global emissions have continued to rise despite years of UN climate talks, the rate of emissions growth has slowed. Average annual growth was 1.3% between 2010-2019 and 2.1% in the decade before. However, reaching a plateau remains elusive; emissions are expected to rise this year.

 

The world perhaps missed a chance to materially restructure its energy systems with pandemic stimulus packages. The current energy crisis, exacerbated by Russia’s invasion of Ukraine, potentially presents another inflection point.

 

The rise of alternative energy sources

Solar and wind power generated over a tenth (10.3%) of global electricity for the first time in 2021, rising from 9.3% in 2020, and twice the share compared to 2015 when the Paris Climate Agreement was signed (4.6%). Combined, clean electricity sources generated 37.8% of the world’s electricity in 2021 - more than coal (36.5%). Covid-19 restrictions delivered a record fall in fossil fuel emissions in 2020, but a coal-fuelled energy demand rebound in 2021 effectively negated those savings. This took power sector emissions to a new record of over 12 billion tons of CO2, surpassing the previous record in 2018 by 3%. Emissions growth is in stark contrast to what is needed for the IEA’s net zero pathway.

 

In this modelled roadmap, global energy demand in 2050 is around 8% lower than today, but it supports an economy over twice the size and a population with 2 billion more people. More efficient use of energy, greater resource efficiency and positive behavioural changes combine to offset increases in energy demand as the world economy grows and energy access materially improves. Two-thirds of total energy supply is from wind, solar, bioenergy, geothermal and hydroelectric sources. Solar becomes the largest source, accounting for 20% of energy supply. Solar PV capacity increases 20x between now and 2050, and wind power 11x. In parallel, fossil fuels fall from almost 80% of total energy supply to slightly above 20%.

 

Core renewable technologies have seen rapid per unit cost declines as they have scaled – now achieving parity (or better) against fossil fuels. Most CO2 emission reduction through 2030 is forecast to come from electrification via the increased utilisation of existing technologies. But through to 2050, almost half the reductions come from technologies that are currently at the demonstration or prototype phase. Continued innovation efforts are required to bring these new technologies to commercial viability. Enabling technologies and infrastructure will be vital for transforming the energy system.

The unit costs of some forms of renewable energy and of batteries for passenger EVs have fallen, and their use continues to rise

unit costs.png

Changes in the cost and adoption of photovoltaics (PV), onshore wind, offshore wind, concentrating solar power (CSP), and batteries and electric vehicles.  

Source: IPCC WG3 (2022), Figure SPM.4.

 

Total energy supply, 2019 – 2050

Energy graph 2050.png

Source: IEA


So what are some key solutions, trends and innovations potentially worth noting across both new and existing clean energy technologies?

Solar

Annual capacity additions should continue to grow strongly and further improvements to cost curves may be realised. Use of materials such as perovskite could improve overall solar performance. More nascent form-factors and use-cases are now emerging, such as solar roof tiles, floating solar farms and solar canopies.

Wind

Again, capacity additions should continue at pace. Turbine sizes should see further growth and the commencement of commercial floating wind capacity auctions should open sizable new regions for offshore development. Industry wastage has received attention and consortiums have been set up to look at recycling across the supply chain. The ZEBRA consortium recently produced the first prototype of its 100% recyclable wind turbine blade.

Hydrogen

Hydrogen will be needed to help fill the gaps where electricity cannot easily or economically replace fossil fuels. Innovation opportunities are particularly ripe here given the relative maturity of this technology (i.e., hydrogen electrolysers, hydrogen fuel-cells). The scale-up and further commercialisation of green hydrogen technology, as well as the build-out of associated infrastructure, will be critical for wider usage of this energy source. The recent energy crisis has seen green hydrogen hitting cost parity with fossil-fuel dependent blue and grey.

 

Storage/Infrastructure

Electricity system flexibility will be paramount to effectively supporting future energy generation and consumption, addressing challenges around frequency regulation and load balancing (e.g., mitigating the duck curve). The need to develop appropriate infrastructure will be key to creating a grid that is both resilient and sustainable. Battery storage will likely be a critical component of the ‘connective tissue’ needed to join evolving demand-side and supply-side requirements. Battery technology innovation continues at pace – centered around power output, energy density, storage duration and charging lifecycles. Solid-state development has been an area of particular focus given the safety, power density and cycling performance improvements that this technology could potentially yield. Digitisation and AI will also play a significant role in smoothly managing energy distribution across multiple generation assets and demand endpoints in a way that maximizes both efficiency and reliability.

 

The radical transformation of energy systems globally will be of paramount importance if climate catastrophe is to be averted. The future of energy must be one underpinned by the rapid deployment of renewable energy sources and the decay of fossil fuel usage. Anything but this course of action is simply not an option.


More about the authors

Adam Hussain Investment Analyst

Adam Hussain, Investment Analyst, is a member of the global Equities team and is responsible for generating ideas & supporting our Global Sustainable Equity fund. 



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