The global pace of the renewables build-out needs to increase by a factor of between five and seven by 2030 and by a factor of ten by the mid-2030s if the world is to reach net zero emissions by mid-century, says a new study by influential climate business think-tank Energy Transitions Commission* (ETC).
Power sectors in developed nations should reach near-total decarbonisation by the mid-2030s, with the use of coal eliminated “almost immediately” and clear plans to phase out unabated natural gas, according to the ETC report, Making Clean Electrification Possible: 30 Years to Electrify the Global Economy.
It adds that developing economies should commit to net-zero goals for 2060 and achieve full decarbonisation of their electricity sectors by the mid-2040s, phasing out existing coal plants in the 2030s and early 2040s.
Low-income countries, meanwhile, should aim to massively expand clean electricity provision without ever relying on fossil fuels for power generation.
The report also explains that there must be massive investment in transmission and distribution, the electrification of transport, heating and heavy industry, and the build-up of clean hydrogen — mainly green H2 produced from renewable energy with a small proportion of blue H2 derived from natural gas with CCS — to help decarbonise hard-to-abate sectors such as steel, shipping and aviation.
This entire energy transition will require trillions of dollars of investment, but will ultimately pay for itself, “if managed effectively”, the study says.
“These feasible objectives will only be met if countries take strong action in the 2020s, setting out both what needs to be achieved by 2030 and how they will achieve it,” it explains.
In 2050, 73% of the total global energy demand in an efficient net-zero world would come from clean electricity (almost 72,000TWh), with 16% met by clean hydrogen and its derivatives (ammonia and synthetic fuels), and small roles for bioenergy and fossil fuels with CCS, the report shows.
ETC director Faustine Delasalle tells Recharge: “We can't wait until 2030 to invest massively in clean electrification and hydrogen. It needs to happen in the 2020s if we don't want to lose our chance to be on the right trajectory for a 1.5°C scenario.”
The study explains that while policies to achieve these objectives will vary from country to country, there are six “critical actions” that every national government will need to implement in order to reach their emissions goals.
1) Set clear medium-term targets
Clear quantitative targets for zero-carbon electricity by 2030 are needed, such as for wind and solar capacity, or the overall emissions intensity of the grid, as well as government mandates to phase out fossil-fuel technologies by certain dates, including banning petrol and diesel road transport.
2) Build a market design that supports clean energy
Cost will not be a barrier to the massive build-out of renewable energy required, says the ETC report.
“ETC analysis shows that by 2035, total system costs of near-zero-carbon electricity systems will be fully competitive with current fossil-fuel-based costs in most geographies,” it says, pointing out that new wind and solar power is now cheaper than new fossil-fuel power in countries containing two thirds of the global population. And in nations that are home to half of the world’s citizens, building and operating new wind and solar plants will cost less than running existing coal and gas power stations.
“Fully decarbonised power systems… will be able to deliver electricity across days, weeks and year at costs fully competitive with today’s fossil-fuel-based systems.”
Fossil-fuel subsidies that prevent renewables competing on a level playing field should be immediately scrapped, the report also advises.
But the key method to incentivise a cleaner energy system is through “appropriate” power market design.
“The biggest policy mechanism for the 2020s is… power market design and ensuring massive investments in renewables,” says Delasalle. “Because the decarbonisation of power is the thing that can happen fastest. And it’s also what can underpin the decarbonisation of a large share of mobility, of a large share of [heating] buildings, of a large share of industry. It’s just the fundamental building block that underpins everything else.”
And the critical component of any power market design, or regulatory framework, will be long-term contracts for renewable power, she explains.
Long-term contracts are “the fundamental elements in our recommendations around power market design” as they can help to avoid the phenomenon of price cannibalisation, which could make renewables projects unprofitable.
Price cannibalisation is when wholesale power prices fall during windy and/or sunny periods as the market becomes saturated with wind or solar power, causing prices to fall below zero if the supply of electricity exceeds demand.
“If we exclusively rely on short-term [wholesale] markets to underpin the business case for investment in renewables, we will not see the investment in the renewables sector that we need,” she explains. “So what we do need are long-term contracts… [which] provide certainty to investors and enable them to invest at the right pace and at the right scale. So it’s really critical.”
Developers could sign long-term contracts with grids, states, utilities or large business consumers, she adds.
Short-term markets would still be needed for ancillary services and to ensure grid flexibility, Delasalle says, with enough incentives in place to encourage the necessary investments in back-up energy storage or peaking plants powered by clean hydrogen/ammonia or natural-gas with carbon capture and storage.
Energy storage would be a combination of batteries — both utility-scale and in electric vehicles (EVs), more long-duration technologies such as thermal or liquid-air storage, with green hydrogen and long-distance interconnection for seasonal storage, the ETC says.
In addition, new subsidies may be required to encourage the electrification of heating and heavy industry, such as incentives for heat pumps, which are far more efficient and cheaper to run than natural-gas heating but require a large upfront cost, or to encourage steel producers to switch from coke to green hydrogen.
3) Ensure sufficient grid investment
To reach net-zero by 2050, the ETC predicts that the global electricity demand will grow from 27,000TWh today to 90,000-130,000TWh by 2050 — largely due to the direct electrification of transport and heating, as well as indirect electrification (ie, green hydrogen). This renewable H2 will be used directly in heavy industry and some long-distance road transport, but also as the basis for green ammonia fuel in shipping and the synthetic fuels that will be required for aviation.
This will therefore require the upgrading, expansion and digitalisation of the world’s transmission and distribution (T&D) grids on an unprecedented scale — as well as the build-out of the necessary EV charging infrastructure.
“Global estimates for T&D are inherently less certain than for generation because of varying local conditions and starting points — with, for instance, huge differences in cost driven by local planning rules or land costs, and by choices between over and underground lines,” the report says. “But reasonable estimates suggest that transmission investment could grow from today’s $300bn per annum to around $1trn per annum, with distribution investment rising from $180bn per annum to $900bn per annum.”
Total grid investment costs over the next 30 years could therefore reach $80trn, which sounds alarmingly large — but this would be offset by the elimination of most of the $1trn per year currently invested in fossil-fuel development, as well as a reduction in power-generation costs from the increased use of renewables.
The ETC argues that with the low interest rates we are currently seeing, “funding this investment poses no macroeconomic challenge”, while adding: “But this will not occur fast enough and in an efficient fashion without clearly defined strategies and strong supporting policies.”
T&D account for about 40% of total power system costs today, of which two thirds is for distribution and one third transmission. But the ETC is confident that the massive grid investments needed will not have an impact on consumer electricity prices.
“T&D costs are probably going to rise in the first instance, but not to an extent that wouldn’t be offset by your reduction in generation costs,” says Delasalle. “So we’re quite optimistic that this transition will actually be positive for the end consumers.”
Ensuring that regulatory frameworks are created that enable anticipatory investment in power networks — ie, up to five years in advance of predicted growth in electricity demand — is paramount, along with “clear plans for supply-chain expansion and workforce training”, the report says.
4) Streamline planning and permitting
The ETC calls for an integrated vision for power system and network design, along with more streamlined planning, permitting and land-acquisition regulations to allow for faster build-out of renewables and T&D projects.
“Renewables development, even if eventually approved, is often greatly delayed by lengthy planning and permitting procedures, and/or by local opposition on the grounds of localised impact or noise pollution,” says the report. “In addition, in some developing countries (for instance, in India) processes for land acquisition can be lengthy and expensive as a result of uncertainty over ownership and slow legal procedures.”
The ETC therefore recommends that countries carry out strategic assessments of the long-term need and likely locations of renewables projects, which would help “streamline permitting processes with coordination across different regulatory bodies”.
Planning and permitting processes for grid infrastructure also need reform in order to support rapid development, which will necessitate long-term planning, the designation of some projects as “national infrastructure priorities” with their own special regulatory regimes, and a one-stop-shop approval process to “ensure coordination across multiple layers of government and multiple regulators”, the study says.
5) Support clean-energy financing in developing countries
The report points out that while affordable finance is widely available for clean-energy projects in developed countries, this is not the case elsewhere.
“In some developing and emerging economies, the cost and availability of capital could be a significant barrier to rapid growth,” the ETC says. “[For example,] if Indian renewable power developers could access capital at the same cost as in advanced economies, bid prices at auction could fall another 25 to 30%.
“Rapid development of clean power systems will therefore rely on a large-scale role for multinational and national development banks, which can provide policy design advice alongside finance. Clean power system development for emerging economies should therefore be a priority focus for globally agreed flows of 'climate finance' from developed economies.”
Other financial instruments to scale investment in developing countries include blended finance (using development finance to simultaneously mobilise private capital), concessional finance (which uses below-market interest rates) and the securitisation of assets (pooling together financial assets to reduce risk), the study adds.
6) Support new technologies and business models
The ETC advocates for limited, but focused subsidy support for those clean technologies that are not yet cost-competitive with existing polluting solutions, such as heat pumps, next-generation batteries and electrolysers, as well as long-duration clean-hydrogen storage.
The report also says it is “critical for governments and regulators to deploy a set of enablers” to support the development of demand-side management — in which businesses or consumers reduce their electricity usage in response to price signals or feed more clean energy to the grid at times of need, via rooftop solar panels or EV batteries (vehicle-to-grid).
“[This] will require rolling out appropriate incentives within power markets (in particular real-time pricing), as well as ensuring the mandatory installation of smart capabilities (e.g. smart chargers), ease of customer use, and the development of aggregator and virtual power plant (VPP) business models,” the study states.
* The Energy Transitions Commission is a climate business think-tank, which describes itself as a “global coalition of leaders from across the energy landscape committed to achieving net-zero emissions by mid-century”.
It is driven by 48 commissioners who are all senior figures in the energy industry or major energy-consuming sectors such as aviation and steel. Commissioners include BP’s group chief economist Spencer Dale, Shell chairman Chad Holliday, and British businessman Adair Turner, who is a former chairman of both the UK Financial Services Authority and the Committee on Climate Change, as well as a former director-general of the UK’s influential Confederation of British Industry.
For a full list of commissioners, click here.