Electricity markets today are undergoing a radical and unprecedented transformation that is fast gaining momentum across Asia, Europe and the Americas.
Solar- and wind-generation and energy-efficiency developments are driving this transformation, and coal—the traditional source of electricity in much of the world—is in the back seat.
Evidence of the shift is captured in a report we just published called “Global Energy Markets in Transition,” which details the many ways this change is occurring from one day to the next in China, especially, and in India.
Our estimates put solar-powered installation growth at 20 percent in 2014, hitting a record 46- to 48-gigawatt capacity. New wind-powered expansion in 2014 may put as much as an additional 46 gigawatts online.
Here’s a quick round-the-world tour of some of other significant developments:
- The new-energy transformation was particularly apparent in the Chinese market, where real economic growth exceeded electricity demand, suggesting rapid strides in energy-efficiency programs. Supply diversification, in the meantime, saw China’s coal consumption decline 2 percent and coal imports fall by 11 percent in 2014.
- In India, Energy Minister Piyush Goyal surprised the world by announcing a proposed ban on imported thermal coal within 2-3 years, alongside surprisingly aggressive plans for 100 new gigawatts of solar installations and 60 gigawatts of wind-powered electricity by 2022. That push includes investment of $100 billion worth of renewable-energy infrastructure by 2019, and $50 billion in electricity-grid upgrades.
- Germany’s electricity demand fell by 3.8 percent in 2014, according to preliminary data, and electricity generated from coal there declined by 4.7 percent.
- Japan installed a record 10 gigawatts of solar-energy capacity, part of a 72-gigawatt pipeline.
- Total U.S. coal exports fell 20 percent in 2014, and U.S. thermal coal consumption in 2014 was down 18 percent from its 2008 peak.
Government policy in many cases is providing vital support to the transformation of the global energy economy. This is most obvious, again, in China, where we continue to see peak demand for coal occurring next year, and then declining. Combined with its high-profile carbon-limit agreement with the U.S., Beijing is pursuing a new strategy of lower export tariffs on coal and higher import tariffs. It is also signaling it will not pursue proposed coal-to-oil and coal-to-gas projects that would have required 300 million tons of coal per year.
The U.S., too, is seeing fundamental energy-market shifts. Electricity-sector demand has been flat since 2007, in part thanks to energy-efficiency improvements. And 18 percent decline in coal demand over the same period has been driven also by coal-to-natural-gas switching, the rapid uptake of new wind farms and utility and distributed solar installations. Another force behind the expansion of new-energy development: EPA regulations, most notably implementation of new rules on mercury and air toxics standards implantation and interstate pollution.
Rapidly growing public support for renewables—and popular opposition to coal-fired power plants—is also a factor shaping the U.S. transformation, where one effect for the foreseeable future is in limiting power-plant construction largely to projects fired by something other than coal.
State-level activity is also shaping U.S. markets. California just this month embarked on a new program to increase the share of electricity produced by clean energy to 50 percent, a model that may well be followed by other states. Leaders in Kentucky are questioning traditional economic policy that has relied so heavily on coal production.
All in all, energy markets are changing as we speak, and our research sees the transformation continuing not just in 2015, but in years to come.
Tim Buckley is IEEFA’s director of energy finance studies, Australasia
