World Energy Outlook Foresees Distinct Generation Shift

Global generating capacity is poised to soar by more than 72%, to 9,340 GW, by 2035 from 5,429 GW in 2011, despite retirement of about 1,980 GW, the International Energy Agency (IEA) forecasts in its World Energy Outlook 2012, released in November. Nearly half of this new capacity growth will be propelled by new natural gas plants and wind farms; new coal and hydro facilities are expected to add about 15% each. An estimated $9.7 trillion will be needed to float new capacity additions, with another $7.2 trillion for new transmission and distribution lines, roughly 40% of which will be needed to replace aging infrastructure.

Demand for electricity is set to grow faster than for any other final form of energy worldwide through 2035, ballooning at an average rate of growth of 2.2% per year—at least 38% of which will be driven by China and 13% by India—based on the IEA’s central New Policies Scenario (which takes into account existing policy commitments and assumes that those recently announced are implemented). By 2030, just 12% of the world’s population will still lack access to power, compared with 19% in 2010.

Government Policies to Determine a Future Fuel Mix

Gross electricity generation worldwide will, meanwhile, increase by more than 70% from 21,408 TWh in 2010 to almost 36,640 TWh in 2035, the report says. Fossil fuels will continue to dominate the generation fuel mix, led by coal, even though coal generation will see a significant decline in its share of total generation (Figure 1).

1. Changing states. According to the International Energy Agency’s (IEA’s) newly released World Energy Outlook 2012, the share of electricity generation by source and region in the New Policies Scenario shows a marked shift away from coal to natural gas–fired generation. Courtesy: World Energy Outlook 2012 © OECD/IEA 2012, figure 6.2, page 183

Shares of natural gas and non-hydro renewables are slated to increase, denoting a broader trend toward more diversity in the fuel mix both in Organisation for Economic Co-operation and Development (OECD) and non-OECD countries. According to the IEA, the projected shift in the types of power generation fuels and technologies will be influenced by several factors, foremost of which will be government policies, which can affect investment in new generating capacity and how existing plants are operated, specifically in the nuclear and renewable sectors. “Policies on nuclear vary considerably across countries: some continue to encourage public and private investment in new capacity, while others ban the use of nuclear energy or have introduced programmes to phase it out,” the IEA says. But capital costs will also play an enormous role, as will carbon prices, and water scarcity, which can pose “reliability risks” for coal-fired and nuclear plants while also influencing the generation mix and generating costs.

The Flight of Wind and Solar PV

In 2035, the report forecasts, almost two-thirds of the capacity in operation today will still be generating power. Gas- and coal-fired plants will make up the bulk of gross capacity additions, but wind capacity will also make its mark. About half of the projected 1,250 GW of gross wind capacity additions will be installed in OECD countries. The fledgling solar photovoltaic (PV) sector will also take off with a global capacity increase that is almost as big as that of hydropower and 2.5 times as large as the net increase in nuclear capacity, the IEA says (Figure 2). It notes, however, that power generated from new solar capacity will be considerably less than the increase in nuclear power generation, “reflecting the much lower average availability (capacity factor) of these plants and the variable nature of their output.”

2. When one door shuts. About a third of new capacity additions through 2035 will replace retired generating facilities. More than 50% of new capacity additions will be from new gas plants and wind farms, and about 30% will come from coal and hydropower, the International Energy Agency forecasts. Courtesy: World Energy Outlook 2012 © OECD/IEA 2012, figure 6.2, page 183

Some Regions to See Marked Change

Certain recent events will distinctly shape future power plans for some countries. In the U.S., for example, the recent shale gas boom and environmental regulations geared toward coal and oil plants have put the nation on track to see a sharp increase in gas-fired generation to replace nearly 110 GW of retired coal capacity by 2035, the report estimates.

Japan is still experiencing energy-related aftershocks from the March 2011 Fukushima Daiichi incident, and a September-released “Innovative Strategy for Energy and Environment” aims to reduce reliance on nuclear power, which had in 2010 provided a quarter of all electricity generated in Japan. But even if no new nuclear plants are built through 2035 beyond the two reactors at Shimane-3 and Ohma that are already at an advanced stage of construction, and existing plants are subjected to shorter lifetimes, nuclear generation could recover a 20% share by 2020 (but could be slashed to 15% by 2035, its share picked up by renewables), the current Outlook suggests.

The European Union (EU), which pioneered and continues to be at the forefront of renewable deployment, in 2011 drew away from gas-fired generation (which fell by 17%) and moved toward coal-fired generation (which increased by 11%), driven by higher gas prices and lowered carbon prices in the systemwide Emissions Trading System. The IEA forecasts that trend will continue in the short term even if carbon prices increase over the 2013–2020 period. The share of coal-fired generation will drop “dramatically” from 26% in 2010 to just 9% in 2035, the report says, citing higher carbon prices and a greater penetration of renewables. Gas-fired generation will also regain market share in the longer term as the share of nuclear power will decline (from 28% in 2010 to 22% in 2035) as more capacity is retired.

One notable trend emerging globally concerns increased urgency to reform competitive electricity markets to buttress against increased price volatility associated with the surge of renewables and “ensure that the risks of investing in other capacity—such as flexible peaking plants, storage, interconnection or demand response—are correctly priced,” the report says. With more interconnections being established between neighboring markets to uphold system adequacy, electricity markets are becoming increasingly integrated.

Sonal Patel is POWER’s senior writer.