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Electricity Sector

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Tracking Power

About this report

A fully decarbonised electricity sector is the essential foundation of a net zero energy system. Electricity is at the heart of modern economies, its share of final energy consumption over 50% by 2050 as electricity demand increases rapidly. Unabated fossil fuels currently account for over 60% of total global electricity generation. To be consistent with the Net Zero Emissions by 2050 Scenario, that share needs to drop to 26% by 2030. The pace of deployment of low- and zero-emission sources has to pick up significantly in order to meet this milestone. 

CO2 emissions

Global power sector CO2 emissions (from both electricity and heat production) increased by close to 700 Mt CO2 in 2021, reaching an all-time high of more than 14 Gt. This was driven mostly by a strong increase in coal-fired electricity generation compared to the year before. 

Current trends are not on track with Net Zero Scenario milestones, which see power sector emissions fall by more than of 7% per year to 2030, reaching an emissions intensity of around 165 g CO2/kWh (a 65% reduction relative to 455 g CO2/kWh today), the sector then becoming completely decarbonised by 2040.  

Power sector CO2 emissions in the Net Zero Scenario, 2000-2030

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Activity

The strong increase in electricity sector CO2 emissions in 2021 was caused by the biggest ever year-on-year increase in global electricity demand, which rose by 1 200 TWh (5%). The rise far outstripped the pandemic-induced drop in demand observed in 2020. 

Unabated coal-fired electricity generation met around half of the increase in global electricity demand in 2021. Coal’s share of total electricity generation subsequently approached 36%. Without the coal supply bottlenecks and high prices that affected China and India for part of the year, the increase in coal-fired electricity generation in 2021 would likely have been even stronger. 

Coal-fired electricity generation was further boosted by very high natural gas prices. The costs of operating existing coal plants across the United States and many European power systems were considerably cheaper than the operating costs of gas-fired power plants for the majority of 2021. 

Total renewable electricity generation reached an all-time high in 2021, exceeding 8 000 TWh, 500 TWh more than in 2020. The increase was driven mostly by rising wind and solar PV production, which grew by 270 TWh and 180 TWh, respectively, while hydropower output – still the world’s largest source of renewable electricity – fell by 14 TWh due to the impact of droughts, most notably in the United States and Brazil. The share of renewables in global electricity generation reached 28.6%, increasing by 0.4% from 2020.

Technology deployment

An important indicator of progress in the power sector’s clean energy transition is the share of low-emission technologies (renewables, nuclear, carbon capture and storage and co-firing of ammonia and hydrogen). In 2021, nearly 39% of generation came from low-emission technologies – an increase of one percentage point from 2019. 

Alignment with the Net Zero Scenario will require profound power sector transformation to limit CO2 emissions, reduce air pollution and support energy access expansion, with universal access achieved by 2030. A drastic shift is needed if over 70% of generation is to come from low-carbon technologies by 2030.  

In the Net Zero Scenario, solar PV leads in installed capacity in the mid-2020s, followed by wind. Furthermore, coal’s share declines sharply from 36% today to 13% in 2030, with about 4% of coal-fired generation from plants fitted with carbon capture, utilisation and storage (CCUS). Natural gas still figures in the Net Zero Scenario generation mix because of its lower CO2 emissions, its power output increasing until the late 2020s and then declining to 14% in 2030.  

Shares of global electricity generation by source in the Net Zero Scenario, 2000-2030

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Policy

Several important energy-consuming countries have stepped up their commitment to renewables: 

  • In November 2021, at COP26, India announced new 2030 targets of 500 GW of total renewable capacity and a 50% renewable electricity generation share (more than double the 22% share in 2020), as well as net zero emissions by 2070. 
  • In December 2021, the fourth round of auctions for the UK government’s contracts for difference support scheme for low-carbon technologies opened. Aiming to secure 12 GW of capacity, the scheme is open to an expanded number of renewable energy technologies, including offshore wind, onshore wind, solar, tidal and floating offshore wind. 
  • In May 2022 the European Commission proposed to raise the European Union’s renewable energy target for 2030 from at least 32% to 45%. 
  • With its 14th Five-Year Plan, published in June 2022, China is targeting 33% of electricity generation to be from renewables by 2025, from around 30% today. 
  • In August 2022, the Inflation Reduction Act was passed in the United States. It expands support for renewables through tax credits and other measures and is expected to provide a significant boost to investments over the next 10 years. 

Policies

Policy
Country
Year
Status
Jurisdiction
Investment

Electricity sector investment increased by 7% in 2021. Renewables, electricity grids and battery storage have accounted for more than 80% of total power sector investment since 2019. 

Developments in 2021 included the following: 

  • The year saw a record USD 440 billion of investment in renewables. Despite the increasing inflationary pressure, tighter financing conditions and supply chain bottlenecks, more ambitious climate goals and robust policy support have resulted in a large project pipeline, and investment in renewables is projected to remain strong. 
  • Investment in unabated fossil fuels rebounded in 2021, remaining at over USD 100 billion in total, despite announcements from governments and companies of a move away from unabated fossil fuels and the current uncertainties affecting fuel prices after Russia’s invasion of Ukraine. 
  • Investment in dispatchable low-emission technologies totalled around USD 100 billion per year over the last few years, with a steady rise in spending on nuclear outweighing a decline in hydropower. Nuclear investment is accelerating on the construction of new nuclear reactors in China, Europe and Pakistan, and the refurbishment, modernisation and life extension of existing reactors in France, the United States and Russia. 
  • Investment in electricity grids rebounded by 6% in 2021, driven primarily by the rising share of variable renewables in the electricity systems of many advanced economies. 
  • After experiencing growth in 2021, investment in battery electricity storage is expected to rise to close to USD 20 billion in 2022, based on the existing pipeline of projects and new capacity targets set by governments. 

However, there are significant uncertainties that could have a negative impact on the investment environment for 2022 and beyond. These include Russia’s invasion of Ukraine, the duration of lockdowns in China to control Covid-19 infections, the tightening of monetary policy from central banks, a supply crunch for critical minerals and a lack of qualified workforce in the power sector. 

Global investment in the power sector by technology, 2011-2022

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International collaboration

At the UN Climate Change Conference COP26 in November 2021, countries made further pledges to reduce the unabated use of fossil fuels in power generation. A coalition of 45 countries plus the European Union, 5 subnational governments and 26 organisations signed a Global Coal to Clean Power Transition Statement, acknowledging coal power generation as the single biggest contributor to climate change and committing to scale up the technologies and policies to transition away from unabated coal power generation. 

Related to gas-fired electricity generation, the Global Methane Pledge aims to catalyse action to reduce methane emissions. Led by the United States and European Union, 111 countries agreed to reduce methane emissions to at least 30% below 2020 levels by 2030. 

Private-sector strategies

An increasingly important factor is the private sector’s role in developing renewables through corporate power purchase agreements – signing a direct, long-term offtake contract with a renewable electricity producer for the generated electricity. In 2021 over 31 GW of renewable electricity capacity was contracted through such agreements, accounting for more than 10% of all renewable capacity installed globally that year. 

Recommendations for policy makers

Target and policy stability is essential in enabling the transition to a low-emission electricity sector by providing investors with the stability and long-term investment signals required to cost-effectively deploy capital-intensive low-emission technologies like renewables, nuclear and CCUS. 

Carbon pricing, carbon taxes and the regulation of plant emissions can encourage coal-to-gas switching and provide an important long-term investment signal for low emission technologies. 

Accelerating the rollout of renewables is of vital importance to get on track with the Net Zero Scenario. Consistent targets and adequate policy support for renewables, for example through auctions, are necessary to do so.  

Rising shares of variable renewables increase the flexibility requirements of the electricity system, and market designs should be adjusted to better reward the provision of flexibility, improving the business case for flexible generation, grid-scale storage and demand-side response.

As CCUS in the power sector is still at an early stage of commercialisation, complementary and targeted policy measures such as tax credits and grant funding are needed to secure investment. Furthermore, new coal-fired units should be constructed CCUS-ready, with efficiencies consistent with global best practice (supercritical or ultra-supercritical technologies). 

Recommendations for the private sector

Corporate renewable power purchase contracts can help accelerate the deployment of renewables. These long-term offtake contracts provide revenue certainty and thus lower financing costs for the developers of renewable electricity projects. For large consumers of electricity, these agreements allow for predictable and stable energy costs and a guaranteed supply of low-emission electricity. 

Analysis