Navigating energy transition Keisuke Sadamori Director for Energy Markets and Security IEA GE OIL & GAS ANNUAL MEETING 2016 Florence, Italy, 1-2 February 2016 General Electric Company - All rights reserved
Climate pledges shift the energy sector One-quarter of the world s energy supply is low carbon in 2030; energy intensity improves three-times faster than the last decade Renewables reach nearly 60% of new capacity additions in the power sector; two-thirds of additions are in China, EU, US & India Natural gas is the only fossil-fuel that increases its share of the global energy mix Total coal demand in the US, Europe & Japan contracts by 45%, while the growth in India s coal use slows by one-quarter Climate pledges for COP21 are the right first step towards meeting the climate goal
Index (1990 = 100) Demand and emissions growth decouple in the power sector Growth in world electricity demand and related CO 2 emissions since 1990 (left) and related CO 2 emissions by region (right) 300 200 100 Historical Projected 0 1990 2000 2010 2020 2030 Electricity demand Power sector CO 2 emissions Rest of World Southeast Asia Africa India China European Union United States 2000 2014 2030 Power sector emissions stay broadly flat as the share of low-carbon generation grows to almost 45% in 2030, while electricity demand rises by more than 40% 15 10 5 0 Gt CO 2
Gt CO 2 -eq Peak in emissions: IEA strategy to raise climate ambition 40 35 30 25 Global energy-related GHG emissions INDC Scenario Bridge Scenario 20 2000 2014 2020 2025 2030 Upstream methane reductions Renewables investment Savings by measure, 2030 Fossil-fuel subsidy reform Reducing inefficient coal Energy efficiency Five measures shown in a Bridge Scenario achieve a peak in emissions around 2020, using only proven technologies & without harming economic growth 15% 17% 10% 9% 49%
Efficiency measures on the rise, but significant potential still exists Share of global mandatory efficiency regulation of final energy consumption 40% 30% 20% 10% 2005 2014 2040 Industry Steam boilers Process heat Motors Buildings Heating/Cooling Lighting/Appliances Transport Cars Trucks Ships Energy efficiency policies are introduced in more countries and sectors; they continue to slow demand growth but more can be done
Power is leading the transformation of the energy system Renewables Coal Gas Nuclear Oil Global electricity generation by source TWh 3 000 6 000 9 000 12 000 15 000 2014 Change to 2040 Of which: Hydro Wind Solar Other renewables Driven by continued policy support, renewables account for half of additional global generation, overtaking coal around 2030 to become the largest power source
Renewables are becoming the largest source of new power generation capacity GW 1 600 1 400 1 200 1 000 800 600 400 200 0 World net additions to power capacity 2008-2014 2014-20 Fossil fuels Nuclear Hydropower Non-hydro renewables The share of renewables in net Analysis from the IEA Medium-Term Renewable Energy Market Report 2015 and the New Policies Scenario of the World Energy Outlook 2015.
2010 = 100 More renewables for less money 160 140 120 100 80 60 40 20 0 Global indicative generation costs for new plants 2010 2015 2020 2010 2015 2020 2010 2015 2020 Onshore wind Solar PV - utility scale Offshore wind High levels of incentives are no longer necessary for solar PV and onshore wind, but their economic attractiveness still depends on the regulatory framework and market design
Evidence of lower costs on the horizon Recent announced long-term contract prices for new renewable power Onshore wind Utility-scale solar PV Germany USD 67-100/MWh Germany USD 96 /MWh United States USD 47/MWh United States USD 65-70/MWh Canada USD 66/MWh Turkey USD 73/MWh China USD 80 91/MWh India USD 88-116/MWh Brazil USD 81/MWh Brazil USD 49/MWh Chile USD 85-89/MWh Uruguay USD 90/MWh South Africa USD 51/MWh South Africa USD 65/MWh Egypt USD 41-50/MWh This map is without prejudice to the status or sovereignty over any territory, to the delimitation of international frontiers and boundaries and to the name of any territory, city or area Jordan USD 61-77/MWh United Arab Emirates USD 58/MWh Australia USD 69/MWh A combination of price competition, long-term contracts, good resources and financial de-risking measures is creating deployment opportunities in newer markets and at lower costs
GW Renewable growth can be accelerated back on track to meet climate goals World renewable power capacity growth, main versus accelerated case 180 160 140 120 100 80 60 40 20 0 Historical Accelerated case Forecast 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 United States Japan EU-28 Other OECD India China Brazil Other non-oecd United States Japan EU-28 Other OECD India China Brazil Other non-oecd Main case Renewable energy can be brought back rising annual installation growth, through enhanced domestic policies, e.g. grid integration of variable renewables
1 8 15 22 29 36 43 50 57 64 71 78 85 92 99 106 113 120 127 134 141 148 Energy security risks of renewables Net-load at different annual VRE shares Higher uncertainty 80 000 70 000 20% 10% 5% 2.50% 0% Smoothing effect at low shares Larger and more pronounced changes Load level [MW] 60 000 50 000 40 000 30 000 20 000 10 000 Larger ramps at high shares More frequent up and down at high shares 0 Note: Load data and wind data from Germany 10 to 16 November 2010, wind generation scaled, actual share 7.3%. Scaling may overestimate the impact of variability; combined effect of wind and solar may be lower, illustration only. Hours Source: The Power of Transformation 2014
Nuclear power can play a role in CO 2 abatement & energy security CO 2 emissions avoided annually by nuclear power Share of energy demand met by domestic sources 1971-2040 and nuclear power in 2040 Gt 2.5 100% 2.0 1.5 1.0 0.5 80% 60% 40% 20% 1971 1980 2000 2020 2040 China United European Japan States Union Indigenous Nuclear production Indigenous & production nuclear By 2040, almost 4 years of current emissions have been avoided by nuclear power; it cuts dependence on foreign fuel supplies & lowers import bills for some countries Korea Net imports
Five-year revision: World s carbon budget is shrinking World s remaining carbon budget Today 2020 2025 2030 2035 2040 A five-year review cycle would enable pledges to keep pace with energy sector innovation; building ambition before the carbon budget is consumed
Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 Jan-18 Jan-19 Jan-20 Coal prices to remain under pressure $/t 250 200 150 100 50 Development of thermal coal prices Global financial crisis New supply capacity meets slowing demand CIF Prices in North West Europe (ARA) Global overcapacity & weaker than expected demand look set to put further downward pressure on coal prices through to 2020 Source: IEA Medium-Term Coal Market Report, 2015
Has coal use in China already peaked? TWh 500 400 300 200 100 0-100 Drivers for Chinese coal-based power generation decline in 2014 BAU Real power demand growth Higher hydro capacity & seasonal effect Higher wind & solar generation Higher nuclear & other generation China s coal use may have already peaked, reflecting the gradual economic rebalancing & further growth in low-carbon sources of power Source: IEA Medium-Term Coal Market Report, 2015
The big opportunities & uncertainties for natural gas are in Asia Natural gas demand and supply in developing Asia, 2014 2040 & 2040 bcm 1 500 1 200 900 600 300 Imports Conventional Unconventional Additional to 2040 2014 Demand Production Developing Asia accounts for almost half of the rise in global gas demand & 75% of the increase in imports, but gas faces strong competition from renewables & coal
Global stock builds seen to persist in 2016 could see tank tops come under pressure mb/d Demand/Supply Balance until 4Q16* mb/d 98 3.5 96 94 92 90 88 86 *OPEC production assumed at 32.3mb/d in January (three month average) followed by a gradual ramp-up of incremental Iranian production to 600/kb/d in June. Production is held at this level thereafter 84 1Q09 3Q10 1Q12 3Q13 1Q15 3Q16 2.5 1.5 0.5-0.5-1.5-2.5 Impl. stock ch.&misc (RHS) Demand Supply* Source: OMR, January 2016
A new balancing item in the oil market? Change in production (2015-2020) of US tight oil for a range of 2020 oil prices mb/d 2 1 0-1 -2-3 -4 $40/bbl $50/bbl $60/bbl $70/bbl $80/bbl $90/bbl $100/bbl Tight oil has created more short-term supply flexibility, but there is no guarantee that the adjustment mechanism in oil markets will be smooth
GW Dollars per kw Million Dollars per kwh Lock in the vision: What more does it take for 2 C? 100 Cost reductions & deployment of all solar PV 2 800 Cost reductions & deployment of electric vehicles 200 400 75 2 100 150 300 50 1 400 100 200 25 700 50 100 2015 2020 2025 2030 2035 2040 Capacity Capital costs Solar PV additions Solar PV (right axis) 2015 2020 2025 2030 2035 2040 Vehicle sales Battery costs Total Internal combustion Electric vehicles Electric (right axis) An emissions goal would give greater clarity & certainty to the energy sector, strengthening the case for RD&D investment & technology transfer
Policies spur innovation and tip the balance towards low-carbon Costs in 2040 for different energy sources/technologies, relative to 2014 60% 40% 20% 0% -20% -40% -60% Solar PV Onshore wind Efficient lighting Efficient industrial heat production Upstream oil and gas Innovation reduces the costs of low-carbon technologies & energy efficiency, but for oil & gas the gains are offset by the move to more complex fields
Conclusions The energy transition is underway. But, needs more specific and ambitious targets and robust implementation. Stable and predictable policy supports and regulatory frameworks are needed to ensure investments in low carbon technologies. Companies that do not anticipate stronger energy & climate policies risk being at a competitive disadvantage. OECD/IEA 2016