Clean energy still lags as the world demands more power

Clean energy still lags as the world demands more power
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Although the global power industry is in the midst of a secular transformation, triggered by a massive decline in the costs of clean energy, things are not going as fast as many may think. The needs for power continue to climb and, in this context, the role of clean power is still marginal.

S&P Global Platts Analytics estimates that global power generation (the sum of the conventional and renewable power generation) grew at a robust 3.5 percent pace in 2018. We have not seen such strong growth in years, and this pace is equivalent to adding the demand of Japan each year.

The growth reflects a combination of extreme weather and underlying growth in a number of key regions — China, the U.S. and, to a lesser extent, India — despite concerns about a slowing economy. 

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As for China, annual power demand growth was about 6.5 percent in spite of lingering concerns about a trade war with the U.S. emerging already last year. In the case of the U.S., electricity needs were up by over 3 percent in 2018, the highest growth since 2011.

Frigid temperatures earlier in the winter and a hotter summer underpinned U.S. power demand in 2018, with even weather-adjusted, demand was still up by 0.9 percent year over year.

Although cold spells this winter were not as long as last year, heatwaves in 2019 have already been blanketing the West and South, offsetting the impact of a weakening economy.

Power demand is not growing as fast in India as it is in China, but its global influence is still formidable. The latest numbers for 2018 point to 4.5-percent yearly growth, and a recent heatwave — the longest in Indian history — is currently underpinning demand above this level.

Voracious needs for electricity mean global coal burn will continue to increase

These numbers become more interesting when put in the context of how the electricity is being generated. In this context, coal remains a dominant force in the generation mix.

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The U.S. does show a steep decline in coal burn due to the broad availability of domestically produced cheap gas and additional retirements of coal-fired plants. Other countries with higher demand growth (and less domestic gas) tend to rely more heavily on coal for power generation.

China is a case in point. Although the country has been making massive investments in renewables and nuclear power over the past few years, coal generation still accounts for the vast majority of its power generation mix.

At the margin, higher power demand inevitably means higher utilization of its vast coal fleet. Similarly, India relies largely on coal to meet growth, in spite of a strong policy push to diversify its power mix, with ambitious targets set for solar. 

Clean energy remains marginal in the global generation mix

Reliance on coal is not going away any time soon, especially as recent policy changes have actually hurt renewable investments, notably solar. While power demand has been its strongest in years, renewables capacity growth has been weakening and is not keeping up with the higher needs for power.

Capacity additions for solar, in particular, slowed in 2018, with things still looking bleak so far in 2019. A number of uncertainties have emerged for the pace of solar additions due to changing supporting policies in China and the passage of duties for the import of PV modules in other major importers such as the U.S. and India.

Even if global power demand growth slows amid weaker macroeconomic signals, current trends in renewables additions imply that clean energy will only meet up to 40 percent of annual demand growth.

As a result, progress in power-sector decarbonization will remain weak in the near term. The re-emergence of extreme weather, as seen in 2018, only worsens these trends. 

This point is important to keep in mind, especially as electric use in transportation starts to take off and is generally expected to be clean or “zero emission” option.

Bruno Brunetti head of global power planning at S&P Global Platts Analytics.