Electricity is central to modern life and clean electricity is pivotal to energy transitions, but in the absence of faster structural change in the sector, rising demand over the next three years could result in additional market volatility and continued high emissions, said an IEA report.
Driven by the rapid economic rebound, and more extreme weather conditions than in 2020, including a colder than average winter, last year’s six per cent rise in global electricity demand was the largest in percentage terms since 2010 when the world was recovering from the global financial crisis.
In absolute terms, last year’s increase of over 1,500 terawatt hours was the largest ever, according to the January 2022 edition of the IEA’s semi-annual Electricity Market Report.
The steep increase in demand outstripped the ability of sources of electricity supply to keep pace in some major markets, with shortages of natural gas and coal leading to volatile prices, demand destruction and negative effects on power generators, retailers and end users, notably in China, Europe and India.
Around half of last year’s global growth in electricity demand took place in China, where demand grew by an estimated 10 per cent.
China and India suffered from power cuts at certain points in the second half of the year because of coal shortages.
“Sharp spikes in electricity prices in recent times have been causing hardship for many households and businesses around the world and risk becoming a driver of social and political tensions,” said IEA Executive Director Fatih Birol.
“Policy makers should be taking action now to soften the impacts on the most vulnerable and to address the underlying causes. Higher investment in low-carbon energy technologies including renewables, energy efficiency and nuclear power — alongside an expansion of robust and smart electricity grids — can help us get out of today’s difficulties.”
The IEA’s price index for major wholesale electricity markets almost doubled compared with 2020 and was up 64 per cent from the 2016-2020 average.
In Europe, average wholesale electricity prices in the fourth quarter of 2021 were more than four times their 2015-2020 average. Besides Europe, there were also sharp price increases in Japan and India, while they were more moderate in the US where gas supplies were less perturbed.
Electricity produced from renewable sources grew by six per cent in 2021, but it was not enough to keep up with galloping demand. Coal-fired generation grew by nine per cent, serving more than half of the increase in demand and reaching a new all-time peak as high natural gas prices led to gas-to-coal switching.
Gas-fired generation grew by two per cent, while nuclear increased by 3.5 per cent, almost reaching its 2019 levels. In total, carbon dioxide (CO2) emissions from power generation rose by seven per cent, also reaching a record high, after having declined the two previous years.
For 2022-2024, the report anticipates electricity demand growing 2.7 per cent a year on average, although the Covid-19 pandemic and high energy prices bring some uncertainty to this outlook.
Renewables are set to grow by eight per cent per year on average, serving more than 90 per cent of net demand growth during this period.
The IEA expects nuclear-based generation to grow by one per cent annually during the same period.
Responding to the IEA report, Dave Jones, Global Programme Lead at Ember, said: “It’s not a surprise to see a sudden increase in electricity demand after a pandemic-induced shutdown.
“However, failure to build enough new clean electricity to keep up with demand will slow the phaseout of coal-fired and gas-fired electricity; a mistake we can’t afford to make for the climate. Even before the energy crisis, new wind and solar projects were cheaper than fossil projects, but now that differential has exploded. The winners from the energy price crisis will be wind and solar.”