From the editor: Gas demand unphased by renewables expansion [Global Gas Perspectives]
The International Energy Agency (IEA) released its latest report on renewable energy in October, forecasting that an increase in global renewable energy capacity of 2.7 times by 2030 was likely based on countries’ current trajectories. However, this is still short of the tripling targeted by nearly 200 countries at the COP28 climate summit in November 2023.
There is no question that the accelerated expansion of renewables heralds a revolution in the way the world generates energy and is a major step forward in reducing greenhouse gas (GHG) emissions, but is it enough and what does it mean for fossil fuel demand and, in particular, natural gas?
Capacity versus generation
In 2023, according to Energy Institute data, the world generated about 90 exajoules (EJ) of renewable energy, out of a total of 620 EJ, equivalent to 14.5% of global use.
If the tripling target was met, that implies 270 EJ in 2030. About 85 EJ will be required to meet growth in energy demand, assuming an increase of 2% a year. This figure carries significant uncertainty as, amongst multiple variables, it pits faster growth driven by AI and related technologies against gains in energy efficiency.
In turn, this implies 185 EJ displacement of fossil fuels, assuming nuclear generation remains roughly stable, with new building offset by retirements.
However, one certainty is that a tripling of renewable energy capacity will not result in 270 EJ of clean energy generation because the proportion of different renewable energy technologies in the overall fleet will change substantially.
The expansion of renewables will be driven almost entirely by wind and solar, both of which have lower capacity factors than hydroelectricity, which is expected to grow only slowly.
Global hydro capacity stood at roughly 1,400 GW at the end of 2023 and generated some 40 EJ of power. Global renewables capacity, excluding hydro, according to the International Renewable Energy Agency, was 2,470 GW. Generation from this capacity was 46 EJ.
Not only will the composition of renewables change, but the composition of the non-hydro element will change too, as solar is expanding much more rapidly than wind. In 2023, global wind capacity stood at 1,017 GW and generated 21.75 EJ, while solar capacity was much higher at 1,419 GW, but generated less power at just 15.35 EJ.
According to the IEA, variable renewable energy generation – wind and solar – account for 90% of the global increase in renewable generation by 2030. Solar becomes the largest source of renewable power in 2029, and wind overtakes hydro in 2030.
A tripling of capacity therefore falls well short of a tripling of usable energy. The IEA’s figures show global renewable electricity generation rising from about 9,000 TWh in 2023 to 17,000 TWh in 2030, an increase of 88%, equivalent to about 75 EJ, a figure commensurate with the expected increase in overall energy demand growth.
While this does not consider renewable heat, it assumes a tripling of renewables rather than the forecast 2.7 times increase. It thus looks likely that there will be little impact on fossil fuel demand, which could, in fact, increase.
China at the centre of growth
The world would not even come close to the target of tripling renewable energy capacity, if it were not for China, already the leader in wind, solar and hydro deployment. China is expected to account for 60% of the global expansion by 2030. It will also supply the bulk of solar panels and many of the wind turbines for the rest of the world to expand their capacities.
Yet despite being the epicentre of the energy transition, China is still likely to see its demand for natural gas and LNG rise. China’s power system is dominated by coal; in 2023 the country consumed 91.94 EJ of the carbon heavy fuel. Natural gas, in contrast, plays a very modest role in the Chinese power mix, generating just 298 TWh in 2023 in comparison with 5,754 TWh from coal and 2,894 TWh from renewables including hydro.
China’s expansion of renewable energy will also be dominated by solar first and then wind. While, in 2023, its large hydropower fleet accounted for 42% of total renewable generation, hydro’s proportion of installed capacity will fall.
To reduce GHG emissions, the increase in renewable energy needs to cut into coal consumption rather than displace the relatively small amount of gas for power use. Increasing the amount of variable generation to much higher levels than ever before will also heighten the need for flexible generation, which is one of gas’s key advantages, in addition to creating a much greater need for energy storage.
Gas for power use in China is already on the rise. The country added 8.4 GW of new gas-fired capacity in 2020, 10.0 GW in 2021, 10.5 GW in 2022 and 12 GW in 2023. CNPC’s Economics and Technology Research Institute (ETRI) forecast at the end of last year that China’s gas demand would peak only in 2040 at 605.9bn m3. China also has to deal with much higher rates of energy demand growth than the global average – expectations are for around 5%/yr rather than 2%.
Moreover, while China’s dependence on coal is extreme, it is more than equalled by India. Coal last year accounted for 53.9% of primary energy consumption in China and 56.1% in India.
In fact, all the major Asian LNG markets, which include the top four importers and the sixth, accounting for 55% of global LNG imports, retain dependency on coal far higher than the largest importers of LNG in Europe. They all have higher rates of energy demand growth, with India, in particular, expected to experience strong demand expansion over the next decade.
Coal peak eludes the energy transition
The implication is that when set against the combination of solar’s low capacity factor, its primary place in the expansion of renewables, energy demand growth and Asia’s coal dependency, a tripling of renewable energy capacity by 2030 must be considered only the start of what is necessary to come anywhere close to achieving net zero carbon economies by 2050.
The first real turning point will be a significant downturn in coal consumption, which reached record levels in 2022 and 2023. In its mid-year update, the IEA estimated global coal consumption had risen by 1.0% in the first six months of 2024, and forecast that it would end the year up 0.5% at another record level. So far, a peak in global coal consumption eludes the energy transition.
A tripling of renewable energy capacity by 2030 should deliver that at least, but not much more. It will be building on the progress of this decade and the expanded capacity to deploy more renewables on an annual basis in the period 2030-2040 which will impact fossil fuel demand over the longer term. Doing this will require not just the continued expansion of an already buoyant solar sector, but much larger additions of wind power and, in particular, exploiting the vast potential of offshore wind.