The International Energy Agency reckons coal has only two and a bit more years before it is overtaken by renewables as the world’s major source of electricity and for that positive development we have to thank Russia’s invasion of Ukraine and the global energy destabilisation that act of aggression ignited.
The IEA made it clear in a report this week that while the global energy crisis emanating from the war in Ukraine has seen a surge in coal use and profits for producers, it has also undermined the commodity by accelerating the transition to renewables.
“Renewables [will] become the largest source of global electricity generation by early 2025, surpassing coal,” the IEA predicted.
And according to its “main-case forecast,” the IEA expects renewables to account for nearly 40% of worldwide electricity output in 2027, coinciding with a fall in the share of coal, natural gas and nuclear generation.
In its largest-ever upward revision to its renewable power forecast, the IEA now expects the world’s renewable capacity to surge by nearly 2,400 gigawatts between 2022 and 2027 — the Agency pointed out that is equal to “entire installed power capacity of China today.”
“This massive expected increase is 30% higher than the amount of growth that was forecast just a year ago, highlighting how quickly governments have thrown additional policy weight behind renewables,” the IEA revealed.
For Australia that’s both good news – our renewable strengths have us well-placed for the transition and low carbon future – but there is also dangers for export income, employment and investment.
It also explains why Michael Cannon-Brookes’ assault on AGL was well-timed and what lies ahead for the new board, as well the revamp and takeover of AGL’s rival, Origin Energy.
It also reveals the high level of exposure of the Queensland Government with its two coal based generating companies, which are heading for the block as the government moves rapidly towards a renewables based future. the pace of change may have to be accelerated.
It’s not that coal isn’t going to be still needed – it will. But growth in demand for coal will slow and then fall away, forcing marginal producers to drop out of the industry as costs rise and oversupply pushes prices lower.
Price cutting will be the only defence coal producers will have to remain in business and that in turn will be further pressured by oversupply, forcing more companies out of the business.
Many companies involved in coal – especially thermal coal – face difficult futures. These include Whitehaven, Yancoal Australia, Coronado, Glencore, BHP, Anglo American, Peabody and a host of smaller, marginal players.
Thermal or energy coal producers are in the gun – those involved in coking coal (used in steelmaking) face an easier time but those producing soft coking coal (that is interchangeable with thermal coal use – face similar problems to thermal coal-only producers.
Only a repeat of the Russian invasion of Ukraine – say a Chinese invasion of Taiwan – would have the power to trigger another energy crisis in the next five years.
The IEA said the global energy crisis is driving a sharp acceleration in the growth of renewable power.
“Energy security concerns caused by Russia’s invasion of Ukraine have motivated countries to increasingly turn to renewables such as solar and wind to reduce reliance on imported fossil fuels, whose prices have spiked dramatically.,” the IEA said.
“The report finds that renewables are set to account for over 90% of global electricity expansion over the next five years, overtaking coal to become the largest source of global electricity by early 2025.
“Renewables were already expanding quickly, but the global energy crisis has kicked them into an extraordinary new phase of even faster growth as countries seek to capitalise on their energy security benefits. The world is set to add as much renewable power in the next 5 years as it did in the previous 20 years,” according to IEA Executive Director Fatih Birol.
“This is a clear example of how the current energy crisis can be a historic turning point towards a cleaner and more secure energy system. Renewables’ continued acceleration is critical to help keep the door open to limiting global warming to 1.5°C.”
The war in Ukraine is a decisive moment for renewables in Europe where governments and businesses are looking to rapidly replace Russian gas with alternatives.
The amount of renewable power capacity added in Europe in the 2022-27 period is forecast to be twice as high as in the previous five-year period, driven by a combination of energy security concerns and climate ambitions.
An even faster deployment of wind and solar PV could be achieved if EU member states were to rapidly implement a number of policies, including streamlining and reducing permitting timelines, improving auction designs and providing better visibility on auction schedules, as well as improving incentive schemes to support rooftop solar.
Beyond Europe, the upward revision in renewable power growth for the next five years is also driven by China, the United States and India, which are all implementing policies and introducing regulatory and market reforms more quickly than previously planned to combat the energy crisis.
As a result of its recent 14th Five-Year Plan, China is expected to account for almost half of new global renewable power capacity additions over the 2022-2027 period. Meanwhile, the US Inflation Reduction Act has provided new support and long-term visibility for the expansion of renewables in the United States.
Utility-scale solar PV and onshore wind are the cheapest options for new electricity generation in a significant majority of countries worldwide. Global solar PV capacity is set to almost triple over the 2022-2027 period, surpassing coal and becoming the largest source of power capacity in the world. The report also forecasts an acceleration of installations of solar panels on residential and commercial rooftops, which help consumers reduce energy bills. Global wind capacity almost doubles in the forecast period, with offshore projects accounting for one-fifth of the growth. Together, wind and solar will account for over 90% of the renewable power capacity that is added over the next five years.
The report sees emerging signs of diversification in global PV supply chains, with new policies in the United States and India expected to boost investment in solar manufacturing by as much as USD 25 billion over the 2022-2027 period. While China remains the dominant player, its share in global manufacturing capacity could decrease from 90% today to 75% by 2027.
Total global biofuel demand is set to expand by 22% over the 2022-2027 period. The United States, Canada, Brazil, Indonesia and India make up 80% of the expected global expansion in biofuel use, with all five countries having comprehensive policies to support growth.
The report also lays out an accelerated case in which renewable power capacity grows a further 25% on top of the main forecast. In advanced economies, this faster growth would require various regulatory and permitting challenges to be tackled and a more rapid penetration of renewable electricity in the heating and transport sectors. In emerging and developing economies, it would mean addressing policy and regulatory uncertainties, weak grid infrastructure and a lack of access to affordable financing that are hampering new projects.
Worldwide, the accelerated case requires efforts to resolve supply chain issues, expand grids and deploy more flexibility resources to securely manage larger shares of variable renewables.
The accelerated case’s faster renewables growth would move the world closer to a pathway consistent with reaching net zero emissions by 2050, which offers an even chance of limiting global warming to 1.5°C.
