DNV Energy Transition Outlook 2023

The report finds that between 2017-2022 renewables met 51% of new energy demand, whilst the remaining demand was supplied by fossil fuels. Renewables are still just meeting increased demand rather than replacing fossil fuels and in absolute terms fossil fuel supply is still growing.

Limiting global warming to 1.5°C warming is less likely than ever.  To reach the goals of the Paris Agreement, CO2 emissions would need to halve by 2030, but DNV forecasts that this will not even happen by 2050.

CO2 emissions will be only 4% lower than today in 2030 and 46% lower by midcentury. Energy related CO2 emissions are still hitting record highs and are only likely to peak in 2024, which is effectively the point at which the global energy transition begins.

Globally, the energy transition has not started, if, by transition, we mean that clean energy replaces fossil energy in absolute terms. Clearly, the energy transition has begun at a sector, national, and community level, but globally, record emissions from fossil energy are on course to move even higher next year.

… said Remi Eriksen, Group President and CEO of DNV

#1 The transition is still in the starting blocks

Global energy-related emissions are increasing and are expected to peak in 2024, marking the beginning of the transition. Renewables have met 51% of new energy demand, while fossil sources have 49%.

The ‘grab for gas’ following Russia’s invasion of Ukraine has led to high gas prices and increased coal-fired power generation, further increasing emissions. Natural gas is losing its status as a ‘bridging fuel’ for the transition.

#2 Renewables outsprint fossils from the mid-2020s

It will take the next 27 years to move the energy mix from the present 80% fossil 20% non-fossil split to a 48%:52% ratio by mid-century. From 2025, most new capacity will be non-fossil, with wind and solar growing ten-fold and 17-fold, respectively.

Over the next decade, new fossil production in low- and medium-income countries will be largely nullified by reductions in high-income countries. Coal use will fall from 26% to 10% by 2050, and fossil primary energy demand will decline from 490 EJ to 314 EJ.

#3 Energy security is moving to the top of the agenda

Over the past 18 months, geopolitical developments have emphasized energy security, with local energy being prioritized over imports. This trend favours renewables, nuclear energy, and coal in all regions. Additionally, governments are now willing to pay a premium of 6% to 15% for locally-sourced energy.

Reshoring and friend-shoring policies are adding to supply chain complexities and costs. 2022 saw an increase in the levelized cost of renewables in several regions but cost reductions are expected to return to historic learning curve rates by 2028.

In the long term, decarbonizing energy mixes, including wind, solar, and batteries, will shield national energy systems from international energy trade volatility.

#4 Progressive policy is making an impact

Progressive policies are accelerating the transition to clean energy, with the US Inflation Reduction Act committing USD 240bn in clean investments.

The EU Green Deal, REPowerEU, and Fit for 55 policy packages make Europe’s net-zero goal more realistic. Shipping is set for a faster transition due to EU’s emission trading system inclusion and the IMO’s ambitious decarbonization strategy.

The ‘race to the top’ in clean technology among advanced economies will drive global learning benefits, but only partially benefit medium- and low-income regions. As a result, de-risked financing is needed to accelerate the transition beyond leading regions.

#5 Gridlock impeding the near-term expansion of decarbonization technologies

Despite inflationary and supply-chain headwinds, solar installations reached a record 250 GW in 2022. Wind power contributed 7% of global grid-connected electricity and installed capacity will double by 2030.

The global grid will double in length from 100 million circuit-km (c-km) in 2022 to 205 million c-km in 2050 to facilitate the fast and efficient transfer of electricity.

In the near term, transmission and distribution grid constraints are emerging as the key bottleneck for renewable electricity expansion and related distributed energy assets such as grid-connected storage and EV charging points in many regions.

Both the EU and the US are advancing policies to address permitting delays, but a deeper policy response is needed, which may encompass expropriation and financing to ease cable manufacturing production constraints.

Grid expansion is important for the production of hydrogen, which in turn is dependent on more robust demand-side measure to incentivize offtake.

#6 Global emissions will fall, but not fast or far enough

DNV predicts that global energy-related CO2 emissions in 2050 to be 46% lower than today, and by 2030, emissions are only 4% lower than they are today. The emissions DNV forecasts are associated with 2.2°C of global warming above pre-industrial levels by the end of this century.

From 2024, the share of renewables in the primary energy mix will grow by more than one percentage-point per year, resulting in a 52% non-fossil share by 2050, up from 20% today.

The pace of the transition is far from fast enough for a net-zero energy system by 2050. That would require roughly halving global emissions by 2030, but DNV’s forecast suggests that ambition will not even be achieved by 2050.

Limiting global warming to 1.5°C is therefore less likely than ever. While emissions rise, the consequences of climate change are becoming more visible and impactful, with extreme weather events becoming more frequent and damaging.

The long-term trend for the energy transition remains clear: the world energy system will move from an energy mix that is 80% fossil based to one that is about 50% non-fossil based in the space of a single generation. This is fast, but not fast enough to meet the Paris goals.

… concluded Remi Eriksen

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