IEA: Fossil-Fuel Subsidies Restricting Renewable Energy Growth

---

Written by Martin Lynch, European News Editor for Industrial Info (Galway, Ireland)--Fossil fuels will remain the dominant source of electricity to 2040, according to the International Energy Agency (IEA), but the high level of subsidies is holding back investment in renewable energy.

In its World Energy Outlook 2014 report, the IEA estimates that fossil fuels such as oil, gas and coal will supply 55% of electricity by 2040, down markedly from its 68% share in 2012. However, the use of coal-fired generation is on the decline in the Organization for Economic Cooperation and Development (OECD), including the United States, where coal-fired power drops by almost one-third to 2040. Coal will still thrive in China, where it grows more than anywhere else, but its share will still fall rapidly, the IEA concluded. Despite strong growth in India, its share in the mix will also fall. Oil-fired generation will decline by more than half in most regions.

In contrast, gas-fired power generation almost doubles over 2012-2040, increasing in most regions.

In Europe, gas-fired generation will regain its dominant position over coal, thanks to rising CO2 prices, but it is a long crawl back to the top and will only get back to 2010 levels around 2030.

The share of renewables in total power generation is estimated to rise from 21% in 2012 to 33% in 2040, and they will account for almost half of the growth in global electricity generation. Renewable electricity generation, including hydropower, nearly triples over 2012-2040, overtaking gas as the second-largest source of generation in the next couple of years and surpassing coal as the top source after 2035. China will lead experience the largest increase in renewables generation, more than the combined growth of the EU, U.S. and Japan.

"As our global energy system grows and transforms, signs of stress continue to emerge," said IEA Executive Director Maria van der Hoeven. "But renewables are expected to go from strength to strength, and it is incredible that we can now see a point where they become the world's number one source of electricity generation."

The IEA highlighted that fossil-fuel subsidies totaled $550 billion in 2013 -- more than four-times those of renewable energy -- and are holding back investment in both renewables and efficiency.

Global subsidies to renewables reached $121 billion in 2013, up 15% from 2012. This will grow to around $230 billion in 2030, according to the report's New Policies Scenario, before falling to $205 billion in 2040 due to the end of support commitments for recently deployed capacity. In 2013, almost 70% of subsidies to renewables for power were provided in just five countries: Germany ($22 billion), the U.S. ($15 billion), Italy ($14 billion), Spain ($8 billion) and China ($7 billion). The European Union remains the largest financial supporter of renewables to 2040, with the U.S coming close second.

Within renewables, solar photovoltaic(PV) will continue to receive the largest portion of subsidies, at least until falling unit costs help to reduce subsidies below those for bioenergy for power around 2040. Subsidies for onshore wind will peak just before 2020 and then decline steadily as it becomes competitive with conventional power plants.

The IEA raised concerns about the phasing out of nuclear power, particularly in Europe. The IEA said almost 200 of the 434 operating commercial nuclear reactors will have to be retired by 2040. Countries with ageing nuclear plants are not only facing massive dismantling costs ($100 billion) but also how to dispose of growing volumes of spent nuclear fuel in the absence of permanent disposal facilities.

Nuclear power plants account for 11% of global electricity generation today, down from a peak of almost 18% in 1996, with more than 80% of capacity in OECD countries. This will grow slightly to 12% by 2040. However, non-OECD countries are set to account for the bulk of future growth. There are about 76 gigawatts (GW) presently under construction and more than three-quarters are in non-OECD countries. The future growth will be concentrated heavily in just four countries: China, India, South Korea and Russia.

"China, India, Korea and Russia see the most significant increases in installed nuclear capacity," the IEA stated. "The increase in China, of 132 gigawatts (GW), exceeds the current installed capacity of the United States and Russia combined. India's and Russia's nuclear power capacity rises by 33 GW and 19 GW, respectively. Despite capacity in Korea more than doubling, to 49 GW, the OECD share of global nuclear capacity falls from 80% in 2013 to 52% in 2040. The number of economies worldwide operating nuclear reactors increases from 31 in 2013 to 36 in 2040, as newcomers more than offset countries that phase out nuclear power. Uranium resources are more than sufficient to provide fuel to satisfy these projections."

Global gas use continues to grow. Demand will hit 5.4 tcm in 2040, rising to joint second place with coal as the second-largest fuel in the global energy mix, after oil. The main market behind the big gas boost is China, which the IEA predicts will become a larger gas consumer than the European Union around 2030, and the Middle East.

Gas production will increase in every major region except Europe. Unconventional [shale] gas will account for almost 60% of the growth in global production, with China having the fastest gas output growth among the major producers. The United States will remain the largest global gas producer but production will ease off in the late 2030s as shale gas output starts to fall back.

The IEA cautioned: "The way that gas will be priced on domestic and international markets is a key uncertainty, with the challenge of finding a price level and pricing mechanisms acceptable to consumers but nonetheless sufficient to incentivise large new investments in gas supply proving challenging".

Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, three offices in North America and nine international offices, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info's quality-assurance philosophy, the Living Forward Reporting Principle™, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities. To contact an office in your area, visit the Industrial Info "Contact Us" page.