The world is now entering the Age of Electricity

The International Energy Agency (IEA) published its annual World Energy Outlook (WEO-2024) on October 16, warning that the world is failing to limit global warming to 1.5C.

What is new this year is the declaration by the IEA that the world is now “moving at speed into the Age of Electricity, which will define the future global energy system.”

According to the IEA, energy security remains a key issue and is inextricably linked with climate action. But despite the growing momentum behind transition to clean energy, the world is still a long way from achieving its net-zero goals.

The Age of Electricity

The IEA states that the world is set to enter a new energy market setting in the coming years, fraught by continued geopolitical problems but also by the relatively abundant supply of multiple fuels and energy technologies. After the Age of Coal and Age of Oil, the world is moving rapidly into the Age of Electricity, driven by electric-vehicles, air-conditioning, chips, AI and others.

But despite IEA’s assertions, peak oil, gas or even coal still elude the energy transition, with their consumption still growing.

Also, electricity growth is very unevenly spread. WEO-2024 estimates that two-thirds of the global increase in electricity demand over the last ten years has come from China, while in Europe electricity consumption has actually been declining.

The Age of LNG

According to the IEA, global LNG export capacity will increase by about 50 per cent by 2030, led by the US and Qatar, with as much as 270bcm expected to enter the markets by 2030. Growth in demand is being led by China, India and Southeast Asia. But supply will exceed demand, creating an LNG glut, causing prices to come down. These are likely to remain low over the next decade, with the risk of crowding out renewable energy development in different parts of the world, especially Asia and Africa.

In Cyprus, completion of the LNG import project at Vasilikos by 2025 would be quite timely, to benefit from the expected low prices.

But despite this, and after decades of growth, the IEA expects natural gas demand to plateau by 2030 and fall by 2050. Should this happen, it could pose a challenge to projects that have not been developed yet, for example gas fields in Cyprus’ EEZ.

Challenges

The main highlight of WEO-2024 is IEA’s assertion that the world is “now moving at speed into the Age of Electricity.” Even though this may happen eventually, is it actually happening now, ”at speed”?

Throughout the last ten years electricity generation grew by an average of 2.5 per cent annually. In 2013 it comprised about 16 per cent of global primary energy and by 2023 this increased only slightly to just over 17 per cent. At this rate, energy transition will be a long-drawn process.

In 2023 fossil fuels contributed 81.5 per cent of global primary energy, only slightly down from 81.9 per cent in 2022.

These data alone do not substantiate IEA’s “at speed” claim. At these rates of growth, it will take some time before the world convincingly moves into an ‘Age of Electricity’.

While this is happening, global primary energy demand will keep increasing. It is driven by the growth in the world population, expected to increase by 20 per cent by 2050, impacting energy demand. In addition, at present in Africa, South Asia, and South & Central America, the average amount of energy consumed per person annually is less than 40 per cent of the global average, even though their combined population is over 50 per cent of the world population and is growing at a faster rate. Not only this is likely to approach 60 per cent of the world population by 2050, but, with improving living standards, their energy consumption will also approach the world average.

Growth in the world’s population will hit energy demand

Energy consumption per capita has actually been decreasing in OECD countries, by about 0.7 per cent per year over the last decade. But it has been increasing in non-OECD countries – that comprise 83 per cent of the world’s population – at a rate of 1.4 per cent per year and faster more recently. In India, where energy consumption per capita in only 16 per cent of the OECD average, the rate increase is even faster, at 3.2 per cent per year.

The combined effect of all these factors could be a 30 per cent plus increase in global primary energy demand by 2050. Should this happen all forms of energy will need to carry on increasing to provide it, with energy security remaining a key issue.

As McKinsey research points out, “despite the progress made by renewables, they are not growing fast enough to keep up with the growth in global energy demand resulting from improving living standards and growing energy needs.”

This is one of the reasons why OPEC, oil and gas majors, and now big international banks and lenders, believe that abandoning investment in new oil and gas will destabilise energy markets and lead to further crises.

McKinsey research also shows that, despite recent momentum, the energy transition is at an early stage. It highlighted a potential disconnect between climate ambitions and what is likely to be achieved in practice. “Right now, we’re only at about 10 per cent of the deployment of ‘physical assets’ – technologies and infrastructure – that we will need to meet global energy commitments by 2050.”

According to the recent UN Environmental Programme (UNEP) Emissions Gap Report “the world, will not achieve net-zero this century, but is on course for a temperature rise of more than 3C above pre-industrial levels.”

The world is not sticking to its stated climate policies

The problem is that, so far, most countries for various reasons do not adhere to their declared policies and climate pledges. A key factor in most of Africa and the Global South is lack of funding. The IEA is warning that “financing costs and project risks are limiting the spread of clean energy.”

UN assessment in 2023 of countries’ Nationally Determined Contributions (NDCs) – pledges to reduce greenhouse gas emissions – concluded that “these plans are not likely to result in change rapid and impactful enough to alter the world’s trajectory for the next few years or decades.” A reason behind this is the Paris Agreement’s focus “on the ambition of targets and global pressure on countries to announce a date for achieving net-zero emissions, that has outstripped countries’ realistic capacity to achieve those targets, which will require significant economic and social change to deliver.”

The COP29 Summit later this month in Baku, Azerbaijan is expected to address this, to deliver the required funding. But, so far, signs are not promising.

Dr Charles Ellinas, @CharlesEllinas, is Councillor Atlantic Council