Energy future: Electricity now attracting more investments

The International Energy Association (IEA) has said that the electricity sector now attracts more investment than oil and gas combined which it calls a new milestone in the history of the energy sector.

As the world continues to evolve, the role of electricity in economies and societies is also growing rapidly. The power sector is becoming a critical actor in the global energy system, with implications for all fuels, including renewables, natural gas, coal and nuclear, as well as most energy technologies.

According to the IEA, global electricity demand doubled between 1990 and 2016, outpacing other fuels, and is set to grow at twice the pace of energy demand as a whole in the next 25 years.

This is why the Paris-based organisation thinks 2018 will be the year of electricity.

There are many factors behind the electrification of the global energy system, including the electrification of heat and transport, the growth of connected devices, and the digitalization of modern economies. Demand for energy services, especially air conditioning, is set to expand in households as incomes rise, while the use of electric motor systems drives demand growth in industry.

The vast majority of this growth will occur in developing economies, including Nigeria, thanks in part to the success of energy access policies. China is leading the way over the next two decades, adding the equivalent of the entire power system in the United States today. India is the fastest growing market, with electricity demand increasing by over 5 percent per year, as it achieves universal electricity access by 2025.

At the same time, the global power supply is in a major transition, moving away from a century-old model of dispatchable fossil fuels. Wind and solar PV are on track to become the cheapest sources of electricity, providing new opportunities for decarbonisation. And as electricity demand and supply change, new business models for the power sector are being created, particularly as digitalization blurs the distinction between generation and consumption.

But this transformation of the energy system also brings fresh challenges, which are now at the top of the policy agenda in many countries. Electricity security has become a more urgent concern as ageing transmission and distribution assets cause power supply interruptions in some countries, concerns over cybersecurity become more pronounced. Integrating growing levels of variable renewables is also raising new issues for the electric grid.

Depending on how new power demand is met, the expansion may exacerbate already dangerous levels of air pollution in major cities in not only China and India but across the world. And despite a growing share of renewables, which generated 25 percent of electricity in 2017, the power sector still accounts for 40 percent of energy-related greenhouse gas emissions. This is why decarbonising the power sector needs to play a pivotal role in clean energy transition.

The IEA says it is still not clear how all these will shape out. However, it is getting increasingly difficult to see a future for a business model dependent on selling kilowatt hours. Aging electricity infrastructure also sparks concern for energy security.

Understanding these changes in the power sector requires a global approach that includes the power system itself as well as energy efficiency, energy storage, transport, heating and cooling and the broader clean energy transition.

“The future is electrifying,” said Fatih Birol, the IEA’s Executive Director. “Electricity is being transformed faster than was ever imagined – and the impact will be felt throughout the energy system. This is why electricity will be at the centre of our analysis this year and in the future, to help policymakers navigate these new challenges.”

ISAAC ANYAOGU