Over the past five years, the average cost of onshore wind has fallen 15 per cent but the IEA warns that many countries will need to retool their grids to manage the output from wind and solar plants.

Washington

OVER the next two decades, the world's energy system will undergo a huge transformation. Wind and solar power are poised to become dominant sources of electricity. China's once-relentless appetite for coal is set to wane. The amount of oil we use to fuel our cars could peak and decline.

But there is a catch: The global march towards clean energy still is not happening fast enough to avoid dangerous global warming - at least not unless governments put forceful new policy measures in place to reduce carbon dioxide emissions.

That is the conclusion of the International Energy Agency (IEA), which on Monday published its annual World Energy Outlook, a 661-page report that forecasts global energy trends to 2040. These projections are especially difficult right now because the world's energy markets, which usually evolve gradually, are going through a major upheaval.

Here are some of the report's major themes:

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Wind and solar make gains

Around the world, the electricity sector "is experiencing its most dramatic transformation since its creation more than a century ago", the report said. One big factor is the rapid growth of wind and solar power.

Over the past five years, the average cost of solar power has declined 65 per cent, and the cost of onshore wind has fallen 15 per cent. The energy agency predicts that those prices will keep tumbling as technology improves and governments scale back subsidies. Solar plants are becoming well-placed to outcompete new coal plants almost everywhere.

The agency sees renewable power supplying 40 per cent of the world's electricity by 2040, up from 25 per cent today. Even that forecast could prove conservative: In the past, the agency has underestimated the speed at which wind and solar power proliferate.

"Our solar expectations are about 20 per cent higher than they were last year, both because of new policies in China and India and because the costs are coming down so fast," said Fatih Birol, the agency's executive director.

The report warns, however, that many countries will need to retool their grids to manage the output from wind and solar plants, which run intermittently. That will mean overhauling rules for how electricity markets operate, relying on batteries and gas plants for grid flexibility and exploring new tools like hydrogen storage.

Coal's boom days are over

For decades, developing countries like China and India have turned to coal as the cheapest, easiest way to power their economies and lift themselves out of poverty. It is a big reason carbon dioxide emissions have skyrocketed.

That is quickly changing. China, which burns half the world's coal, is making heavy investments in wind, solar, nuclear and natural gas, spurred in part by concerns about air pollution from its coal plants. The agency now projects that China's coal consumption will plateau around 2025, with renewables overtaking coal as the country's biggest source of electricity by 2040.

And, while countries in South-east Asia and elsewhere are still drawing up plans to build new coal plants, the agency expects this frenzy of construction to slow sharply after 2020.

But don't expect coal to disappear altogether. While the era of rapid coal growth is fading, the agency projects that global coal consumption could stay flat for decades. One reason for that: The average coal plant in Asia is less than 15 years old (compared with about 41 years in the United States). Those plants will keep polluting for decades, unless countries decide to retire them early or develop technology to capture and bury their emissions.

Oil will not peak for a while

Even as the world puts hundreds of millions of new cars on the road, we are increasingly using less oil to fuel them. The report projects that global oil use for cars will peak by the mid-2020s as countries ratchet up their fuel-economy standards and deploy more electric vehicles.

That does not mean that overall oil use will decline, however. Only about one-quarter of the world's oil is used to fuel passenger cars. The rest is used to fuel freight lorries, ships and airplanes; for heating; and to make plastics and other petrochemicals.

Those sectors have not seen the same improvements in efficiency. As a result, the agency expects global oil demand to keep rising till 2040, led by developing countries.

Climate goals out of reach

Even with the impressive recent gains for renewable energy, the world is still far from solving global warming. Global carbon dioxide emissions rose 1.6 per cent last year and are on track to climb again this year. The report projects that emissions will keep rising slowly until 2040.

One reason: Carbon-free sources such as wind, solar and nuclear power are not yet growing fast enough to keep up with rising global energy demand, particularly in places such as India and South-east Asia. That means fossil fuel use keeps growing to fill the gap.

For this to change, nations will have to enact sweeping new policies, such as investing in energy efficiency to slow demand growth, curbing methane leaks from oil and gas operations, and developing carbon capture technology for existing fossil fuel power plants and cement factories.

Governments will play a key role: The report notes that the world invests US$2 trillion annually in energy infrastructure, and 70 per cent of that is directed by state-owned companies or regulators.

"That tells me that our energy destiny will rely heavily on government decisions in the next two decades," Mr Birol said. NYTIMES