About this report
A first draft report was presented to the 2nd meeting of the G20 Energy Transitions Working Group (ETWG), held through 18-19 April 2019. This final report incorporates feedback and comments submitted during April by the G20 membership and was shared with the ETWG members.
This final report is cited in “Proposed Documents for the Japanese Presidency of the G20” that was distributed to the G20 energy ministers, who convened in Karuizawa on 15-16 June 2019.
This report, prepared as an input for the 2019 G20 ministerial meeting, is an IEA contribution; it is not submitted for formal approval by energy ministers, nor does it reflect the G20 membership’s national or collective views. This report looks at one of the key challenges for the decarbonisation of the energy sector, notably in organised power markets. Based on insights from the IEA flagship publication, World Energy Outlook 2018, and from the recent World Energy Investment 2019, the report provides guidance to policy makers on how to accelerate the decarbonisation of the power sector
The IEA’s analysis on low-carbon power markets, including in this report, sheds light on key priority actions to accelerate energy transitions in the context of G20.
Current low-carbon investments are not on track. Even if under current policies low-carbon sources are expected to be the fastest‑growing source of energy until 2040, this will not be enough to fulfil the climate change mitigation goals of the Paris Agreement.
The power sector is extremely important in the global decarbonisation effort. While electricity’s share in total final energy consumption is less than 20%, almost 40% of CO2 emissions are attributable to the electricity sector. Furthermore, deep decarbonisation of the electricity system is necessary if electrification in transport, industry and other sectors is to become the key to further decarbonisation.
Low-carbon sources’ total share in the energy mix has been kept at roughly the same level as in the early 2000s. Despite the large investments in wind and solar over last ten years, these efforts have only compensated for the low growth in other sources such as nuclear and hydropower.
Even if wind and solar PV deployment could be accelerated, other low-carbon technologies like dispatchable renewables, nuclear power and CCUS also need to be expanded at massive scale to decarbonise the power sector. The level of additional renewable generation sources required to achieve the Sustainable Development Scenario is already extremely high. Expanding the level even more to make up for the lack of growth or decline in nuclear power or CCUS implies enormous challenges in terms of not only additional costs but also land availability and local acceptance.
By 2030, expected higher shares of variable renewables in many power systems will require increased flexibility, which could be provided from many sources, including through the investment in grid interconnection, batteries and demand response, although dispatchable power plants will remain the cornerstone of system flexibility.
Power market designs are crucial in achieving a low-carbon transition without compromising security of supply. Key principles are to ensure remuneration to generation sources that reflects the economic value they provide to the power system, and to send the correct price signals for investments. Low-carbon generation technologies, which have their own technology-specific characteristics and challenges, require market systems designed to address them.
Government policies and actions will play crucial roles in determining power generation investments and the resulting power generation mix. Given the central role of electricity supply in achieving a sustainable energy pathway, it will be critical for policies and measures to make a stronger push towards a rapid energy transition.
For an overview of the vision and priorities of the G20 Japan presidency, see www.japan.go.jp/g20japan/.