The Year of Electricity at the IEA

16 April 2018

Transformations in the power system will be felt throughout the energy system (Photograph: Shutterstock)

The role of electricity in our economies and societies is growing rapidly. The power sector is becoming a critical actor in the global energy system – with implications for all fuels, including renewables, natural gas, coal and nuclear, as well as most energy technologies.

The electricity sector now attracts more investment than oil and gas combined – a new milestone in the history of the energy sector. Global electricity demand doubled between 1990 and 2016, outpacing other fuels, and is set to grow at twice the pace of energy demand as a whole in the next 25 years.

For these reasons, 2018 will be the year of electricity at the International Energy Agency.

There are many factors behind the electrification of the global energy system, including the electrification of heat and transport, the growth of connected devices, and the digitalization of modern economies. Demand for energy services, especially air conditioning, is set to expand in households as incomes rise, while the use of electric motor systems drives demand growth in industry. 

The vast majority of this growth will occur in developing economies, thanks in part to the success of energy access policies. China is leading the way over the next two decades, adding the equivalent of the entire power system in the United States today. India is the fastest growing market, with electricity demand increasing by over 5% per year, as it achieves universal electricity access by 2025.

At the same time, the global power supply is in a major transition, moving away from a century-old model of dispatchable fossil fuels. Wind and solar PV are on track to become the cheapest sources of electricity, providing new opportunities for decarbonisation. And as electricity demand and supply change, new business models for the power sector are being created, particularly as digitalization blurs the distinction between generation and consumption.

But this transformation of the energy system also brings fresh challenges, which are now at the top of the policy agenda in many countries. Electricity security has become a more urgent concern as ageing transmission and distribution assets cause power supply interruptions in some countries, concerns over cybersecurity become more pronounced. Integrating growing levels of variable renewables is also raising new issues for the electric grid.  

Depending on how new power demand is met, the expansion may exacerbate already dangerous levels of air pollution in major cities in not only China and India but across the world. And despite a growing share of renewables, which generated 25% of electricity in 2017, the power sector still accounts for 40% of energy-related greenhouse gas emissions. This is why decarbonising the power sector needs to play a pivotal role in clean energy transition.

In this context, it is unclear what role the utilities themselves, and other power sector players, are set to play. Will the power system continue to exist as it does today? Will the business of producing and selling kilowatt hours remain a viable business model? How can policymakers take action to increase electricity security? How will the industry avoid stranded assets, create value and attract financing given these shifts? What will be the net impact on consumers and prices?

Understanding these changes in the power sector requires a global approach that includes the power system itself as well as energy efficiency, energy storage, transport, heating and cooling and the broader clean energy transition.

“The future is electrifying,” said Dr Fatih Birol, the IEA’s Executive Director. “Electricity is being transformed faster than was ever imagined – and the impact will be felt throughout the energy system. This is why electricity will be at the centre of our analysis this year and in the future, to help policymakers navigate these new challenges.”

 

The Year of Electricity at the IEA 

The IEA is exceptionally well positioned to provide answers to these questions, thanks to its unique understanding across all fuels and all energy-technologies. In the next months, the IEA will focus on various aspects of electricity to inform and guide policymakers and industry as they make decisions in this dynamic and strategic sector. This includes:

The World Energy Outlook 2018 will for the first time feature a special focus on electricity, providing in-depth analysis of the evolution of the power sector and helping shed some light on key uncertainties in the future of electricity and implications for energy security, investment and environmental sustainability;

The next Status Report on Power System Transformation, to be published in May, will provide a leading-edge analysis of how today’s power plants can made more flexible to support this transformation;

The latest Electricity Security Action Plan, to be launched at a workshop in Tokyo in June, will examine the latest electricity security questions;

The Electricity Security Across Borders report will review lessons learned for electricity security from examples of cross-border integration of power systems; 

A new "Technology Roadmap" on Smart Energy Systems;

And, the IEA’s annual Market Reports Series on renewables, gas, coal, oil and energy efficiency, which are released throughout the year, all include assessments on the impacts of the growing renewables and their consequences for other markets. 

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