Electricity generation global demand for fossil fuels is about to peak, RMI says

Electricity generation global demand for fossil fuels is about to peak, RMI says

Energize Weekly, January 25, 2023

The world has reached – or is close to reaching – peak demand for fossil fuels for generating electricity as the installation of cheaper renewable generation continues to grow, according to an analysis by energy consultant RMI.

“Fossil fuel demand has peaked in the electricity sector and this is a key moment in the energy transition which needs to be marked,” Kingsmill Bond, a senior RMI analyst and co-author of the report, said in web presentation of the study.

Two trend lines – one marking the increase in wind and solar installation and another showing sputtering fossil fuel consumption – tell the tale of the role of coal and natural gas in the utility sector, according to the report.

Wind and solar currently make up about 10 percent of the market share and fossil fuels have a 60 percent share.

But wind and solar are growing at about 20 percent a year – as the price of those technologies plummeted with cost of wind turbines down 50 percent in six years and photovoltaic solar costs dropping about 10 percent a year. Meanwhile, the demand for fossil fuels is growing at 1 percent a year.

Add to this that other electricity generation technologies — including nuclear, hydro and biomass – may play a significant role in specific markets further curtailing fossil fuels, the report said.

The shift does face challenges, including overcoming shortages of key materials and minerals, dealing with the up-and-down nature of wind and solar generation, and pushback from petroleum states and fossil fuel industries.

“We’re not for a second suggesting the change is going to be easy or simple or without these problems,” Bond said. “All we’re saying is that it’s happening and it’s going to create disruption.”

The report noted that old-line industries rarely see the peak coming. “The classic example of this is the U.S. coal sector, which still anticipated growth in 2007 even as demand was about to collapse.”

Still, utilities around the world remain large consumers of fossil fuels, burning about 4,000 tons of fossil fuels every second – equal to one tanker ship’s worth.

“Right now, the electricity sector commands the largest share of global fossil fuel production and burns up 35 percent of it annually,” said Sam Butler-Sloss, an RMI analyst and report co-author. “It also represents the largest source of greenhouse gas emissions. It’s around 40 percent of greenhouse gas emissions globally.”

The RMI analysis projects all future electricity demand growth being served by renewable generation as the role of fossil fuel generation declines – or perhaps plateaus for the next few years and declines after 2030.

A decade ago, wind and solar generated an incremental electric supply of 100 terawatt-hours (TWh), in 2021 it was 450 TWh, and this year it will close to 600 TWh, Bond said.

The projected incremental growth in electricity demand over this decade will be between 700 TWh and 1,000 TWh. The question, Bond said, is whether wind and solar are “big enough to make up all of energy demand growth.”

“In the first half of 2022, fossil fuel demand for electricity generation already fell by 37 terawatt hours because wind and solar with some help from hydro, were big enough to start to push them out of the system,” Bond said.

The prospects for renewables supplanting fossil fuels are promising around the globe, Bond said. In the Organization for Economic Cooperation and Development – which includes 38 countries with the world’s most advanced economies – electricity demand has been declining and renewable energy generation growing.

For example, Denmark already gets 67 percent of electricity from renewable sources, and the U.S. Energy Information Administration is projecting that renewables will grow to 25 percent of U.S. electricity generation by 2024, while both coal and natural gas will decline.

Bond said that the prospects are also good in Africa and Asia. In Africa, a more effective engineering and economic solution to the provision of electricity – as fossil fuel plants have not done the job for a century – is the deployment of cheap renewable generation and microgrids and mini-grids.

The “great swing factor” is China. The Chinese government has set a goal of peak fossil fuel demand by 2030 and peak coal demand by 2025. To do this, the country is planning on installing 1,200 gigawatts of wind and solar.

“But the glory of the Chinese system is that in this area, at least in renewables, they’re constantly going ahead of their targets and they have done for the last 20 years,” Bond said. “And this time is no different. So already at the end of 2022, we have 800 gigawatts and annual growth now around 200 gigawatts. So, you just do the math.”

India may be the last large area for potential demand growth for fossil fuels and continued reliance on coal-fired plants. Still, Bond said, “We don’t have to close the coal-fired power stations down today. We can keep them and the main point that we make in this analysis is that all of the growth will be coming from solar and wind from new energy technology.”

Similarly, natural gas-fired plants could be kept online for backup for the “occasional cold night” and going from 40 percent of generation to 4 percent.

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