IEA (2022), Electricity Market Report - July 2022, IEA, Paris https://www.iea.org/reports/electricity-market-report-july-2022, License: CC BY 4.0
Electricity demand growth is slowing significantly in 2022. After global electricity demand grew by a strong 6% in 2021, propelled by rapid economic recovery as Covid-19 lockdowns eased, we expect growth to slow to 2.4% in 2022 – about the same as the average from 2015 to 2019. This reflects slower global economic growth, higher energy prices following Russia’s invasion of Ukraine, and renewed public health restrictions, particularly in China.
Tight natural gas markets are favouring coal-fired power plants. Due to high gas prices and supply constraints, coal is replacing gas for power generation in markets with spare coal plant capacity. In Europe, governments delayed coal plant phase-outs and lifted restrictions to increase the availability of coal generation, thereby reducing gas consumption to improve security of supply.
Renewables are growing faster than demand and replacing fossil fuels. Strong capacity additions are helping global renewable power generation towards growth of more than 10% in 2022. Despite nuclear’s 3% decline, low-carbon generation is set to rise by 7%, resulting in a 1% drop in total fossil fuel-based generation. Globally, coal power increases slightly as declines in China and the United States are balanced by growth in Europe. Gas power falls by 2.6% as growth in North America and the Middle East offsets some of the decline in Europe and in Central and South America.
Electricity sector emissions are set to decline slightly. After having risen to an all-time high in 2021, CO2 emissions from the global electricity sector are set to decline in 2022, albeit by less than 1%. Emissions intensity is set to fall by more than 2%
Wholesale electricity prices are skyrocketing in many countries. In the first half of 2022, gas prices in Europe rose fourfold and coal more than threefold from the same period in 2021, resulting in wholesale electricity prices more than tripling in many markets. Our price index for major global electricity wholesale markets reached levels that were twice the first-half average from 2016 to 2021.
Europe is gearing up to reduce its reliance on Russian fossil fuel imports by accelerating its clean energy transition. The implementation of the European Commission’s REPowerEU plan would greatly accelerate deployment of renewables in the coming years, doubling their share in EU gross final energy consumption from 2020 to 2030 and significantly reducing fossil fuel use. The continued energy price crisis is fuelling debate on wholesale electricity market design, while governments are trying to cushion high electricity prices with diverse support schemes.
Large uncertainties for 2023. The main uncertainties affecting our 2023 forecasts for electricity demand and generation mix concern fossil fuel prices and economic growth. As of mid-2022, we expect global electricity demand growth in 2023 to remain on a similar path as this year. Strong renewables growth of 8% and recovering nuclear generation could displace some gas and coal power, resulting in the electricity sector’s CO2 emissions declining by 1%.