International emerging markets led by China and India are set to together supercharge the next wave in the global energy transition, as the group moves to meet rapid power demand growth with renewables instead of fossil-fired electricity, according to a new report authored by think-tank Carbon Tracker.
The report, Reach for the Sun, commissioned by India’s Council on Energy, Environment and Water (CEEW), calculated that 82% of current emerging market electricity demand and 88% of that forecast through to 2040 will come from countries that import coal and gas but now have “powerful incentives to switch to solar and wind”.
With renewables, according to BloombergNEF figures cited in the report, already the lowest-cost source of new electricity in 90% of the world, emerging markets – defined as non-OECD (Organisation for Economic Co-operation and Development) countries, plus Chile, Columbia, Mexico and Costa Rica – would be able to bypass the capitally-intensive construction of fossil fuel infrastructure based, diverting this investment into wind and solar plant.
Kingsmill Bond, Carbon Tracker energy strategist and report co-author, said: “Emerging markets are about to generate all the growth in their electricity supply from renewables. The move will cut the costs of their fossil fuel imports, create jobs in domestic clean power industries, and save millions of lives lost to fossil fuel pollutants.”
By “leapfrogging” construction of costly coal and gas infrastructure and “meeting growth in demand by deploying clean energy systems powered by wind and solar”, said Bond, there was “huge potential to boost economic development and bring electricity to millions more people” in these markets.
Arunabha Ghosh, CEO of CEEW and report co-author, added: “Around 770 million people still lack access to electricity. They are a small share of forecast growth in electricity demand but the international community has a moral obligation to support universal electricity access as the basis for achieving many other sustainable development goals.”
Demand in developed markets for fossil fuels for electricity generation has dropped 20% since its peak in 2007, noted the report authors, “and every country except two have reached peak fossil fuel demand for electricity”.
“The [energy] transition [will be] different in emerging markets because they have electricity demand growth from a lower base as well as the need to provide access to hundreds of millions of people. Nevertheless, fossil fuel demand for electricity has already peaked or plateaued in 63% of emerging markets ex-China, from Chile to Nicaragua, from Kenya to Thailand.”
China and India dominate
The two largest emerging markets, unsurprisingly, will be China, which represents nearly half of the group’s electricity demand and 39% of expected growth – and India – which accounts for 9% of group demand and 20% of forecast growth, “illustrates the speed and scale of change”.
“China is on the cusp of change, with solar and wind capacity growing at over 20% each year. Assuming electricity demand growth of 4-5% and solar and wind supply growth of 20-25%, fossil fuel demand for electricity in China will peak before 2025,” said the report authors.
“India, from less than 20GW of solar in 2010, has grown to 96GW of solar, wind, biomass and small hydro in May 2021. Including large hydropower, renewables now provide 142GW or 37% of the country’s power capacity, and it has a target of 450GW by 2030. Demand for fossil fuel generation reached a plateau in 2018 and fell in 2019 and 2020.
The report concluded “resistance” to the energy transition “is likely to be more entrenched in coal and gas exporting countries”, though these total only 16% of emerging market electricity demand and 10% of expected demand growth and noted “some are already changing – demand for fossil fuel generation peaked in South Africa in 2007, and many Gulf nations are showing signs of embracing solar”.
“It is vested interests in certain exporters and fragile states that are able to hold back change. But these will simply be the laggards of the energy transition,” said the authors.
“Supportive policy environment is the key to driving growth in renewables. If countries liberalise markets and introduce competitive auctions, they can cut costs and attract international finance as capital markets turn their backs on fossil fuels,” said the authors, pointing to how auctions have helped India drive the cost of solar down to “one of the world’s lowest levels”.
“Developed countries can speed up the transition to renewables in emerging markets by providing policy support, technology expertise and by using development finance to reduce the cost of capital.”
The report underlined: “It is in their interests to do so, in order to support global climate targets, and for geopolitical reasons as the US seeks to counter growing Chinese influence.”