Transitions to Low Carbon Electricity Systems: Key Economic and Investments Trends

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Transitions to low carbon electricity systems: Key economic and investments trends

Changing course in a post-pandemic world

June 2021 The clean energy transition has been too slow and progress too uneven to prevent the most severe impacts of climate change. But the COVID-19 pandemic forces decision-makers to change their course of action and prioritize green recoveries over unsustainable strategies.

Countries, financiers, innovators and the civil society are increasingly rallying around carbon neutrality objectives around mid-century. The years ahead will be decisive for climate action. Sustainable lifestyles are within reach if the challenges inherent to clean energy transitions are suitably anticipated. • • CO • • • • • • • • • carbon investments. low to boost critical are criteria, science-based and on objective, based taxonomies transparent incl. the of finance establishment sustainable initiatives, and institutional leadership Governmental costs. societal reduce and quality air improve manufacturing in used energy efficient and mobility power, clean Clean infrastructures. urban unsustainable origins: common have change climate and pollution air Local more levels. than double current carbon, low be should electricity of 80% over 2040, By technologies. energy clean towards aconvergence and fuels fossil unabated consumption a require displacement swift of energy end-use and production Electricity power. wind and solar hydro, nuclear, for shares market higher in resulted often have technologies carbon low of resilience and competitiveness The sources. carbon by low dominated mix electricity afuture of glimpse a offered and globe the across systems power of The COVID-19 the operation transformed pandemic is one the options. low-carbon most cost-effective by 10 years to 20 plants nuclear existing of operation the extending MWh, per $30-35 of cost At alevelized coal. to alternative adirect is and countries 32 in electricity reliable and predictable provides power Nuclear displacement is now a political priority. Coal foundations for electrification. end-use the lay will electricity secure and to clean shift The by 2050. neutrality social and economic benefits ofreaching carbon physical,Climate the science underpins considerable exposed to outdoor indoor) pollution. (and living in lower particularly are income countries but continue often to elsewhere. rise Populations 2 emissions are declining are in emissions high income countries better back build to actions Aligning agendas climate change and pollution local up Linking neutrality to carbon lead roads All in motion: decarbonization the global Setting sector on the electricity outbreak COVID-19 of the impact The landscape evolvingin an nuclear No more one-size-fits-all opportunity to aglobal crisis From aglobal

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evolved over the past thirty years. years. thirty past the over evolved barely share 2018. in This sources carbon by low supplied was electricity global of percent five Thirty time. on met to be targets emission net-zero for slow too remains but markets many in itself manifests toThe transition electricity clean also indispensable to reach carbon neutrality. carbon to reach indispensable also are options demand-response and storage Energy flexibly. operated plants nuclear and plants hydropower storage pumped assets, units, including gas natural generation power dispatchable interconnectors, regional revolves around infrastructure Flexible electricity overinvestments bills. and higher energy consumption wouldUnmonitored electricity result in outpacing activity. often economic countries, many in foreseen consumption electricity of burst the to circumvent crucial are measures Energy-saving energy sector. of the transformation the sustainable guarantee not does alone electricity clean of availability The tackled totackled ensure successful and just outcomes. be must transition to the inherent concerns inequality employment and economic activity. Social and to stimulate expected are measures recovery Green mitigation costs. risk shocks offset will largely external of range abroader with to cope systems energy future of resilience built-in in Investing communities. local and insurers owners, asset for expense social worldwide,infrastructures at great economic and Severe environmental conditions episodically affect neutrality. carbon way for to the pave immediately double must investments energy Clean infrastructures. electricity clean in yearly invested are billion $600 than More goals. climate with odds at largely remain pandemic to the response in plans energy proposed The to the transition enable flexible systems More electrification A sober withGrowing less: more speed to pace sprint From marathon roll-out: electricity Clean into investments decisions environment natural changing Factoring the finance to low carbon From packages recovery

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Policy priorities Key features and drivers of the transition Topical issues on the Recent trends on the energy transition energy transition Transitions to low carbon electricity systems: Key economic and investments trends Changing course in a post-pandemic world The electricity sector1 acts as a catalyst for an economy-wide transition to a low carbon, climate-resilient and sustainable future. This document shines a light on the nature and pace of the ongoing transition to low carbon electricity systems, takes stock of the immediate impact of the COVID-19 pandemic, and weighs prospects for accelerating the transition post-pandemic. Will 2021 be a pivotal year for the energy transition?

FROM A GLOBAL CRISIS TO A GLOBAL OPPORTUNITY

A year into the pandemic and a gradual recovery in Public and private leaders of the energy transition sight. The social and economic shockwaves generated rally around high-stake opportunities to accelerate by the COVID-19 outbreak laid bare the vulnerability of the recovery through clean energy adoption and our societies and created one of the deepest economic pave the way to carbon neutrality. But countries’ recession in generations. Governments and the health progress and access to these opportunities remain sector turned to scientifi c evidence to design and contrasted. The evidence compiled in this document coordinate their responses. The World Bank and the points to a gradual and partial transformation of the IMF foresee an uneven and uncertain recovery for 2021 global energy landscape, as confi rmed by the World and beyond, and warn that the crisis hit the poorest Economic Forum (WEF): The Transition Readiness nations hardest (Gopinath, 2021; Malpass, 2021), index reveals incremental progress in 94 of the 115 affecting their ability to respond to another looming countries monitored over the past six years (Fig. 1). High challenge: the climate emergency. income countries appear best prepared to pursue the domestic rollout of clean energy as they are to weather A year for decisive climate action. Preliminary data the consequences of the pandemic. But fast progress for 2020 points to a temporary drop in global CO 2 is also observed in South Asia, Southern Africa and emissions but also a net increase in overall greenhouse Latin America, albeit starting from a lower base. The gas emissions despite the economic slowdown (WMO, pandemic did not alter the fundamentals underlying 2020). A wide mobilization of scientifi c and fi nancial WEF country scores. The success of a green recovery, resources is thus as urgent as necessary if the world possibly giving new impetus to the energy transition, is to avert the most severe impacts of climate change will depend greatly on governments’ ability to set on our living environments. With fi rmed up political radical goals, implement policy reorientations and opt ambitions, the emergence of integrated low carbon for sustainable supply chains across the entire energy solutions and harmonized corporate strategies, the sector. year 2021 can culminate at the UN climate change conference in Glasgow with landmark outcomes.

Figure 1 – World Economic Forum Energy Transition Index2

Change in ETI country score from 2015 to 2020 2020 Top 5 ETI scores by income group

High income SWE 74% Average ETI score: 62% CHE 73% FIN 72% DNK 72% NOR 72% Upper middle income COL 63% Average ETI score: 53% CRI 62% MYS 59% PER 59% GEO 59% Lower middle income MAR 56% Average ETI score: 48% LKA 56% PHL 55% SLV 55% VNM 53% Low income TJK 50% Average ETI score: 43% ETH 46% MOZ 42% ETI HTI 36% difference from 2015-2020

+30%

Note: The Energy Transition Index benchmarks countries on the performance of their energy system, as well as their readiness for transition to secure, sustainable, affordable, and reliable future energy system.

2 Recent fi ndings from climate science underpin human resources means will see a more progressive the considerable physical, social and economic implementation. Recent country pledges suggest that benefi ts of limiting the global temperature increase carbon neutrality may be reached by the wealthiest well below 2ºC. A strict management of our carbon nations around mid-century and a decade later budget is of the essence. Ongoing trends suggest elsewhere through piecemeal approaches compatible a temperature rise in excess of 3ºC before the end with economic development. of the century. At current levels of global greenhouse The adoption of low carbon technologies will emissions, our carbon budget would be exhausted materialize as solutions gradually reach market in about a decade, triggering warming beyond 1.5°C maturity. The shift to clean and secure electricity irremediably (with one in two chances) (IPCC, 2018). Our will lay the foundations for end-use electrifi cation. energy systems rest on regular boundary conditions of Coal replacement has become a political priority. water availability and temperature. Higher atmospheric Clean electricity is an indispensable precursor to temperatures would raise the odds of extreme rainfalls, carbon neutrality in other sectors (Fig. 2). Electricity- fl ooding and droughts, eventually impeding the related emissions, trending upward for decades, must reliability of energy services; cooling demand in cities now drop by at least 6% every year through to 2030. In would soar, amongst other and numerous impacts. The addition to nuclear and hydro, various clean electricity Race to Zero, initiated by the UNFCCC, must therefore options have reached mass market in recent years ; gain momentum. A quarter of greenhouse emissions their deployment can be immediately accelerated to expected by 2030 could be avoided with the sole replace uncompetitive coal assets, at the origin of two implementation of unconditional Nationally Determined thirds of power-related emissions (SystemIQ, 2020). Contributions announced before the pandemic (UNEP, A coal-to-clean energy transition could generate over 2020a). $100 billion in net fi nancial savings as early as 2025. Policy makers gradually embrace holistic But a clear path to phaseout, including the refi nancing approaches to decarbonization, addressing all of existing assets, is lacking (RMI, 2020). energy producing and consuming activities, The remainder of the document depicts ongoing trends but also governmental aspirations in favour of and initiatives in support of the energy transition, a just transition. The climate action instigated by including the overall impact of the COVID-19 outbreak individual countries is more and more embedded on electricity systems. The emphasis is given on in inclusive strategies aimed at generating income immediate opportunities for cleaner electricity in and employment, in line with other industrialization various economic contexts and in an evolving fi nancial objectives. Comprehensive policy frameworks, based landscape. Some of the key enablers of the transition, on fi scal, fi nancial and other social protection measures, including various options for fl exible operations, are as well as behavioural and sector coupling policies, illustrated through selected examples. Broader policy are necessary to create the conditions for a just and drivers are also discussed, such as air pollution and cost-effective transition (IRENA, 2020a). Early adoption the vulnerability of energy infrastructures exposed to of low carbon measures and a progressive shift away harmful climate conditions. from fossil fuels is expected in high income countries. Other jurisdictions with more limited fi nancial and

Figure 2 – Illustrative transition to low carbon power systems in line with the Paris Agreement; 2019 serves as the reference year3

Global GHG Emissions 2010 2019 2030 2040

59.1Gt 2019 -14% Total GHG Total GHG -9% 33.3Gt Energy-related CO2 -27% -56% Power-related CO2 -10% 12.4Gt 13.7Gt -43% 7.8Gt 2019 Total GHG -77% 3.2Gt

CO2 emissions for electricity generation

13.7Gt Total -10% -43% -16% 3.1Gt -9% -77% -41% Coal +30% 0.7Gt -55% -53% -71% Oil -10% 9.9Gt -87% Natural Gas

3 CLEAN ELECTRICITY ROLLOUT: FROM MARATHON PACE TO SPRINT SPEED

Clean electricity is on its way to replace fossil fuels production capacity to address both domestic needs and become the main driving force of economic, and markets overseas have established China as the social and environmental progress. The switch to global leader of clean power manufacturing. The year- clean electricity is manifest in many markets but on-year change in low carbon power approaches 11% remains too slow for net-zero emission targets to be in China while electricity consumption progresses at met on time. Among the main energy carriers, electricity more than 7%. At current rates of market penetration, is growing the fastest confirming a general trend about thirty years would be necessary to reach 100% towards electrification of energy use. A fifth of energy low carbon electricity in China and almost fifty years consumption is electric, leaving vast opportunities for globally, way too late to avoid severe hardships resulting fossil fuel displacement in final consumption sectors from climate change (IPCC, 2018). (Fig. 3, top panel). Electricity usage has levelled off in Non-dispatchable electricity sources are now North America, Europe and other high-income regions on par with most conventional sources in many thanks to effective energy-saving measures and markets, stimulated by major technological moderate economic growth. By contrast, consumption advances and cost reductions as well as robust grows swiftly in fast-growing economies, resulting in regulatory frameworks. Comprehensive policy and an acceleration of global electricity needs (on average regulatory frameworks, indispensable to accelerate the +2.7% every year since 2010). Thirty five percent of clean energy transition, are now in place in a majority global electricity was supplied with low carbon sources of countries (World Bank, 2020b). Direct mechanisms in 2018 (Fig. 3, mid panel). This share barely evolved in support of renewable expansion are wisdespread, in more than thirty years. Growing at an average 3.8% inlc. fiscal exemptions (e.g. production tax credits or each year during the last decade, and 5% in the last investment tax credits), and various mechanisms to five years alone, the expansion of low carbon electricity guarantee operators’ revenues independently from only makes up for the incremental electricity needs market conditions. Auctions are often preferred but remains insufficient to alter the sector’s emissions options to identify the most competitive vendors. The perceptibly. Electricity generation is responsible for enforcement of such measures has created favourable 42% of global CO2 emissions, another stable figure for conditions for the uptake of modern renewable more than two decades (Fig. 3, bottom panel). energy in a wide range of countries across all income Progress is unevenly distributed across income segments. The surge in low carbon electricity from groups. Contrasted realities and prospects for onshore wind and solar PV, but also small to mid-size rapid evolution stem from current market drivers hydropower projects, has resulted in a doubling of and other legacy assets, chief among them are renewable capacities since 2010. On average, 200 GW inefficient coal power plants. High income countries of renewable capacity is installed yearly, incl. 100 GW tend to have relatively lower carbon footprints of of solar, 50 GW of wind and another 20 GW of hydro electricity largely as a result of early investments (IRENA, 2020b). Solar and wind sources now supply in hydro and nuclear power capacities. The carbon 7% of global electricity. In 2018, solar and wind supplied intensity in high income countries operating nuclear half of clean electricity in 27 countries. By comparison, capacities is generally among the lowest, averaging hydro and nuclear account respectively for 16% and

300 grams of CO2 per kWh, and as low as 50 grams 10% (IEA, 2020b). in Sweden (Fig. 4).Average intensities in other income Clean energy leapfrogging is increasingly groups are closer to 500 grams. In 2018, half of the low within reach for low income countries thanks to carbon electricity in countries with nuclear assets was adapted solutions and innovative finance. But produced from nuclear power plants. However, clean some bottlenecks remain for the transition to be power progresses half as fast in high income countries fully inclusive. Distributed and renewable electricity as in lower income groups (resp. 3% and 7% on average access and mobile payments are accesible to the since 2015). Rapid improvements in carbon intensities most vunerable populations. But stark regulatory were realised in upper-middle to lower-middle countries, discrepancies between the wealthiest and the poorest thanks to higher environmental standards and policy nations remain. Financially unhealthy power utilities, reforms such as fossil fuel subsidy removals, direct “the main off-takers of renewable energy and principal public support for low carbon programmes and waves implementers of energy efficiency programs”, should of inefficient coal plant shutdowns. Strong policies, be at the centre of governments’ attention (World Bank, the development of local supply chains and enough 2020b).

4 NOR SWE

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25 | n D S A m U S t y N b o R U H r 35% c i N i D o D C | c a N J P I 35% e c t r l o w 00 e L

0 5 10 15 220 25 330 35 4400 2000 2018 Low carbon electricity as share of global total (%) Global electricity generation

In 2000, 35% of global electricity consumption was low carbon In 2018, 35% of global electricity consumption was low carbon y i c t r c t l e

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25 N J P A E A i c D S I D S t y U s t 42% c i i e

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CO2 emissions from electricity generation as share of global total (%) Figure 3 – Domestic vs global distribution of fi nal consumption of electricity by country (Top panel); Low carbon Gelectricitylobal CO2 ebym iscountrysions 4 (Mid panel);In 20 Electricity-related00, electricity produc CO2tion w emissionsas at the ori gbyin ocountryf 40% o f(Bottomglobal CO panel),2 emiss i2000-2018.ons Top 10 contributors are highlighted in blue. In 2018, electricity production was at the origin of 42% of global CO2 emissions y g r e

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Final electricity consumption as share of global total (%) Global final energy consumption

In 2000, electricity consumption accounted for 16% of global final energy needs In 2018, electricity consumption accounted for 19% of global final energy needs

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n 100 –– 2000 i n e 100 f 9,938 Mtoe l 5 –– 2018 a ) i n –– 2000 i n % y f 75 9,938 Mtoe ( 75 –– 2018 ) i n n i c t r % y i o 75 t ( c t 75

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19% | 00 00 5 5 10 10 15 15 2R 0 20 21060%0 2018 e c t r E l 00 5 5 10 10 15 15 20 20 2000 2018 Final electricity consumption as share of global total (%) Global final energy consumption

In 2000, electricity consumptioFninaaclceoluencteridcitfyorc1o6n%sumofpgtilonbaalsfisnhaal reeneorfggylonbeaeldtostal (%) Global final energy consumption In 201080, electricity consumption accounted for 196% of global final energy needs In 2018, electricity consumption accounted for 19% of global final energy needs The integration of large volumes of non-dis patch- A wider adoption of carbon pricing regimes and able electricity creates a challenging environment fossil fuel subsidy reforms can be transformative for investors and operators. Low operating costs for the power sector. But concerns persist characterizing wind and solar energy result in growing regarding the choice of instruments, the sectoral market price volatility and pose signifi cant risks for scope, their practical implementation, and the investment in capital intensive technologies. Nuclear economic and social impacts. 46 national and 35 operators are directly exposed but large offshore wind subnational jurisdictions, representing 22.3% of global and solar thermal developers are not exempt and can GHG emissions, have already integrated carbon pricing have risky profi les to private fi nanciers as well. in their portfolios, through either direct taxation or tradable emission rights and other implicit charges The observed decline in fossil fuel generation in early stemming from regulatory standards (World Bank, stages of the COVID-19 pandemic, as well as frequency 2020c). For instance, Swedish utilities and end-users deviations observed early 2021 in the Continental have been facing a combination of market and fi scal Europe synchronous area, drew attention to additional instruments for years. With these instruments in place, grid stability challenges likely to emerge further into the and large hydro and nuclear capacities, the Swedish energy transition. Replacing heavy rotating steam and electricity is among the most carbon sober in the world. gas turbines with variable renewables leads to a loss of National emissions dropped by 25% and the economy inertia in the electricity system, and may result in greater grew by 60% since the carbon tax introduction in instability, poorer power quality and increased incidence 1991, demonstrating the environmental and economic of blackouts. Large nuclear plants can alleviate the risk effectiveness of carbon penalties. Corporate decisions of supply disruptions in fully decarbonized electricity are also increasingly driven by internal climate systems. Grid managers without nuclear or natural gas objectives and carbon prices. Finally, reforms of fossil capacities at hand are gradually turning to synchronous fuel subsidies were conducted successfully in many condensers and storage solutions to integrate non- countries across all levels of income, e.g. Nordic dispatchable renewable energy. New business models countries but also Argentina, Costa Rica, Ethiopia, and revised pricing rules are foreseen to support this India, Indonesia and Zambia. trend.

Figure 4 – Carbon intensity of electricity by income level, 1990-20185

Lower middle income group Upper middle income group High income group

1990 2018a 1990 2018a 1990 2018a

Nuclear country 1200 1200 1200 Non nuclear country Country group average Nuclear country average

1000 1000 1000

---ZAF r o u h 800 800 800 t - a

w ---IND ---CHN o l ---RUS k i e r p O 2

C ---CZE

f 600 600 600 o

s ---KOR ---UKR e

m ---IRN ---BGR ---JPN a m

G r ---MEX ---NLD ---DEU ---ROU 400 ---PAK 400 400 ---USA ---HUN ---ARG ---SVN

---FIN ---ESP ------GBBERL 200 200 ---ARM 200 ---SVK Long term target 50 gCO2 per kWh ---CAN ---BRA ---FRA ---SWE ---CHE 0 0 0

1990 702 MtCO2 1990 RUS 2,591 MtCO2 1990 USA 4,189 MtCO2

2018 IND 1,814 MtCO2 2018 CHN 6,441 MtCO2 2018 USA 4,486 MtCO2

6 Figure 5 – Breakdown of low carbon electricity by country, 20186

In 2018, nuclear power accounted for High Income Nuclear Upper Middle Income at least half of low carbon electricity Dispatchable Renewable Lower Middle Income in 11 of 30 countries Low Income Non-Dispatchable Renewable FIN CHE SWE GBR ARM ESP ZAF IRN ROU RUS JPN SVN DEU USA MEX BEL

PAK BGR

SWEFIN CHEGBR CAN SVK ESP ZAF IRN RUS ROU SVN JPN ARG 2010 CZE USA DEU MEX BEL PAK NLD FRA BGR CAN SVK ARG CHN HUN CZE Countries NLD FRA with operating CHN IND KOR HUN nuclear capacity IND KOR BRA BRA 2000 UKR UKR 2018

HI UMI LMI LI

CUW ZMB ZWE BENBWABRN TJK UZB ERI SYR ISR SDN KGZ PRY LIE LAO NER CRI SAU AGO SSD ALB YEM MOZ ARE In 2018, non-dispatchable accounted ISL JOR for at least half of renewable MMR TUN electricity in 27 countries COG MHL COD CYP CUBWEN COL TJKUZZBMZBWE BWBARENRI DZA SDSNYR ISRKGZ LAPORY LINEER VEN CRI SAU IRL AGO SSD ALB YEM GAB MOZ ARE MNG ISL JOR NPL MMR TUN MAR COG MHL KHM COD CYP DNK COL DZA CMR VEN IRL JAM GAB MNG MAR NGA NPL GRC KHM DNK HTI CMR Countries JAM POL NGA GRC GHA HTI without operating POL AUS GHA AUS ECU ECU nuclear capacity MAC MAC IDN PRT IDN VNM TGO PRT GEO 2018 URY VNM SUR BLR TGO SRB ITA 2010 GEO BIH EST URY MDV NIC SUR NAM HND BLR NOR TUR SRB HKG DOM ITA IRQ CHL LBN CUB BIH TZA SGP EST KEN BGD ETH THA MDV NZL EGY NIC GTAMZE CILVSO NAM BOL SEN HND MNLEKA HRAVUT PESRLVKAMZDA MUKSWPTHL NOR PAN TUR HKG DOM IRQ CHL LBN CUB TZA SGP KEN BGD ETH THA 2000 NZL EGY GTM LSO AZE CIV BOL SEN MNE AUT LKA HRV PER KWTPHL SLV KAZMDA PAN MUS

HI UMI LMI LI

Note: High income= HI, Upper middle income = UMI, Lower middle income = LMI, Low income = LI

7 NO MORE ONE-SIZE-FITS-ALL IN AN EVOLVING NUCLEAR INDUSTRY

The merits of nuclear power and its place in the Construction risks and capital costs can undermine achievement of carbon neutrality are generally the financeability of nuclear projects in liberalised acknowledged. The extent to which nuclear power markets. Tailored fiscal support and risk transfer can favour the transition will depend on the industry’s schemes to restore competitiveness are under ability to bring costs down, accelerate innovation examination. Financial innovation will be critical to and garner enough public support. In 2019, the overcome project risk and fiscal burden associated nuclear capacity installed globally saw a net decline of with delays in project delivery and cost overruns (NEA, 4.5 gigawatts as the permanent shutdowns confirmed 2020a). Risk premiums can be substantial. In the case in Japan offset new grid connections elsewhere (IAEA, of UK’s Hinkley Point, where a contract for difference 2020a). But increased capacity factors, notably in the guarantees the operator’s revenue irrespective of United States, helped maintain global power generation wholesale market conditions, risk premiums account levels. Nuclear fleet extensions are at various stages for more than a third of the strike price approved by the of advancement in 16 countries while 5 new nuclear government (£36 per MWh) (NSD, 2020). The proposed programmes are in the construction phase (Fig. 6). The Regulated Asset Base model aims at transferring risks centre of gravity of nuclear operations is swiftly moving to consumers with enhanced government protection towards Central and Eastern Europe and Asia at large. during the construction phase and could serve as a model for other projects worldwide (UK BEIS, 2020). The traditional economic model of nuclear power is challenged by liberalised electricity markets in Maintaining and extending the safe operations of which many plants operate, by the diversification existing plants preserves clean power capacity, of power mixes as well as the rapidly evolving is economically sound and could, as such, be policy, regulatory and technological landscape. incorporated into COVID-19 recovery packages to Nuclear power provides predictable and reliable boost local economies and foster the transition. electricity, providing 32 operating countries with a Nuclear supply chains are generally considered secured supply of electricity. The need for flexibility valuable vectors of local economic development and in electricity generation and system management – a job creation: Every million-dollar invested in nuclear trend accelerated by the pandemic – will increasingly creates four jobs (IEA, 2020d). With a supportive characterize future energy systems over the medium investment environment, a 10-20-year licence renewal to longer term. Improved frameworks for remunerating can be realized at a levelized cost of around $30- reliability, flexibility and other services would favour 35 per megawatt-hour, placing it among the most nuclear operators. cost-effective low-carbon options, while maintaining dispatchable capacity (NEA, 2020b). Without such The climate imperative and a wider value extensions, 40% of the nuclear fleet in developed proposition for better market adequacy may economies may be retired within a decade, adding boost nuclear developments in the mid-term. The around $80 billion per year to electricity bills (IEA, 2019). historical contribution of nuclear power to low carbon Long term operation is common in the United States electricity is widely acknowledged, nuclear power with most licences renewed for 60 years, four reactor remaining the second largest source of clean electricity licences subsequently renewed to 80 years and others globally. A single gigawatt-scale nuclear project can set to follow. France’s Grand Carenage programme dramatically improve climate compliance in mid-sized aims at 10 to 20-year extensions for an estimated cost countries, as shown by the recent start of United Arab of EUR45-50 billion. Emirates’s nuclear programme which will eventually supply a quarter of national needs with clean power. The nuclear industry has yet to find its niche in the Nonetheless, a certain lack of governmental and supply of new services, including opportunities policy support prevents nuclear energy from meeting in a nascent hydrogen economy. Several business its full mitigation potential. The inclusion of nuclear models are being designed. Arizona’s public power in taxonomies to channel sustainable investments utility is looking to produce hydrogen from its nuclear could encourage potential investors (OECD, 2020). plant, blend it with natural gas to fuel another of its Small modular reactor designs draw attention in many plants, and thereby optimize its production and reduce countries seeking a quick transition to low carbon its overall carbon footpint. Alternatively, the UK Clean power but with limited financial and physical capacity to Energy Hubs in Sizewell and Moorside are fully- absorb larger projects. Fast tracking the manufacturing, integrated propositions, conceived in partnership with shipping and installation of modules is expected to local energy users, linking emerging technologies such accelerate commercialization. as low carbon hydrogen and energy storage.

8 Figure 6 – Nuclear electricity generation by income group, 2000 and 2019. Estimated annual electricity generation from nuclear power plants currently under construction7

Countries with operating capacity, new nuclear programmers with plants under Income per capita group High Income construction, and IAEA integrated Nuclear Infrastructure Review(INIR) missions Upper Middle Income Lower Middle Income Low Income

Countries with operating nuclear capacity Nuclear generation from plants under construction and new nuclear programmes

USA

ARE BLR TUR EGY BGD

113 TWh

FRA FRA

JPN Nuclear generation from plants under construction in existing nuclear programmes

DEU KOR

CAN KOR GBR GBR CAN DEU JPN JPN USA FIN SWE SVK CHN ESP FRA ESP SWE GBR RUS BEL BEL 2000 CHE 2019 BRA CZE FIN IRN CHE ARG 2444 TWh SVN 2657 TWh 333 TWh FIN IND NLD HUN UKR KOR SVK PAK SVK ROU HUN SVN ZAF NLD CZE MEX ARG PAK BRA BGR PAK BRA ZAF LULXIT CHN ARG MEX ARM BGR IRN IND RUS IND RUS ROU UKR ARM IAEA Integrated Nuclear CHN UKR Infrastructure Reviews conducted since 2009

GHA NGA IDN PHL JOR POL 17% of global total electricity generation 10% of global total electricity generation KAZ SAU 48% of global low carbon electricity generation 28% of global low carbon electricity generation KEN SDN MDV THA MAR VNM NER ZAF

High Income 81%

2000 USA JPN FRA DEU Other KOR

High Income 0.0% 20.0% 40.0% 60.0% 80.0% 17020%.0% 120.0% 140.0% 2018 USA FRA KOR Other CHN RUS

0.0% 20.0% 40.0% 60.0% 80.0% 100.0% 120.0% 140.0%

Note: Anticipated nuclear generation from reactors under construction

9 GROWING MORE WITH LESS: A SOBER ELECTRIFICATION

Electricity demand is set to become one the main electricity consumption worldwide. Policies, fiscal indices of energy transformation. Contrary to most incentives and wider value propositions from car mature economies where consumption growth manufacturers are boosting electrification of ground has come to a halt, electricity remains an essential transportation, now considered a major source of value driver of development in fast-growing economies. creation in the near term. Low-carbon electricity-based In high income countries, the yearly consumption of solutions also have the potential to eliminate emissions electricity per capita now lies above the 9,000 kWh from cement, steel, plastics and aluminium production mark, a slight decline since 2010, but also a 12% and increase industries’ profitability. This trend may increase compared to levels observed in 2000 (Fig. leave consumers better off given the small portion of 7, upper panel). Setting carbon neutrality goals may electricity in the total cost of finished products. Plug-to- delay the saturation in consumption across all income wheel consumption of battery-powered electric vehicles segments. By contrast, consumption keeps growing could be 73% lower than tank-to-wheel consumption of in lower income countries, spurring industrialization a typical gasoline car. Similarly, the tonne of green steel and the emergence of middle class populations with may increase by 20% but adding only $180 to the price increased ownership of electrical appliances and other of a car (ETC, 2020). electronic devices. Each year, the average individual However, the sole availability of clean electricity does consumption of electricity rises around 3% (resp. 4%) not guarantee a sustainable transformation of the in upper-middle (resp. lower-middle) income countries. energy sector. Unmonitored electricity consumption Per capita electricity consumption in China and India would result in overinvestments and higher energy have reached respectively 5,000 kWh and 1,200 kWh bills, eventually altering the economic benefits of the per year but growing significantly faster than their peers energy transition. Anticipating realistic future needs in their respective income groups. The annual rate of is critical to schedule the cost-effective upgrade of progress has been closer to 2% in the lowest income energy infrastructures. The EU Strategy for Energy countries where large electrification gaps – and deficient System Integration addresses the issue by placing the existing infrastructures – are closing only gradually. emphasis on more circular energy systems with an Access to reliable electricity allows economies “energy-efficiency-first” principle (EC, 2020). to flourish and living standards to improve. The Tailored incentives and mandates, which are adoption of high-performance electrical equipment necessary to optimize electricity production and is also deemed good value for money. A quick moderate consumption, remain the blind spots of access to electricity services, simplified administrative existing policy frameworks. Incentives and mandates procedures, moderate and transparent tariffs, are vital are decisive for power and grid utilities seeking for businesses to thrive (World Bank, 2020d). Frequent efficiency gains and managing demand-side measures. power outages and non-cost reflective tariffs, often But progress in regulatory frameworks is reportedly the result of chronic under-investments, are common slow and penalties in case of non-compliance are often in lower income economies and can be particularly lacking, including in high-income countries (World harmful to local entrepreneurial activity. Bank, 2020b). Public budget financing, consumer Electricity consumption is accelerating in many surcharges, combined with optimized time-of-use rate countries, often outpacing economic activity (Fig. 7, structures, can be used to compensate for revenue lower panel). Every dollar generated globally embeds losses induced by mandated energy efficiency activities roughly 23 kWh of electricity. The decoupling between but are implemented too sporadically. Incentives and electricity and GDP was sizeable two decades ago but mandates can also be beneficial to large industrial and has been slowing down more recently. Since 2010, commercial consumers. But a lack of awareness and the electricity intensity of the global economy has inadequate energy management programmes prevent been growing at 1% per year (1.8% in upper-middle the full optimization of electricity usage. Other incentives countries). Generalizing the electrification of end- for further energy efficiency gains can be applied to use, either directly (potentially supplying 65% to 70% public procurement rules with a binding obligation to of final demand according to ETC, 2020) or indirectly track realized savings in public administrations and through e.g. water electrolysis for hydrogen production other types of institutional infrastructures. (potentially 15-20% of energy needs), is likely to boost

10 Figure 7 – Per capita electricity consumption and electricity intensity of GDP by income group, 2000-20188

LI LMI UMI HI Per capita electricity consumption (kWh per capita)

2019 Togo India China United States 2018 Togo India China United States 2010 Togo India China United States 2000

1 10 100 1,000 10,000

CAGR per capita electricity consumption (% per year) LI LMI UMI HI 2000-2010 15% 2010-2018

Togo India China United States 10%

-5% 2000-10 avg: 4.3% 2000-10 avg: 3.0% 2000-10 avg: 1.5% 2010-18 avg: 4.4% 2010-18 avg: 1.9% 2010-18 avg: 0.5%

Electricity intensity of GDP (kWh per US$ GDP) LI LMI UMI HI

2019 Togo India United States China 2018 Togo India United States China 2010 Togo India China United States 2000

0.008 0.04 0.2 1

CAGR electricity intensity of GDP (% per year) LI LMI UMI HI 2000-2010 10% 2010-2018

India China 5% Togo

United States

-5%

2000-10 avg: -1.3% 2000-10 avg: -3.2% 2000-10 avg: -2.6% -10% 2010-18 avg: -0.4% 2010-18 avg: -1.3% 2010-18 avg: -2.4%

Note: High Income=HI, Upper middle= UMI, Lower middle=LMI, Low income=LI; CAGR = Compound Annual Growth Rate.

11 THE IMPACT OF THE COVID-19 OUTBREAK ON THE ELECTRICITY SECTOR

The COVID-19 pandemic transformed the operation the fi rst period of global lockdowns. Then economic of power systems across the globe and offered a activity – and electricity markets – resumed to more glimpse of a future electricity mix dominated by low regular conditions. The large price drops in Europe carbon sources. The systemic economic and social resulted from not only COVID-19 lockdown measures impact of the COVID-19 outbreak, and the accompanying from March to June 2020, but also collapsing demand responses, have led to an unprecedented and sustained due to an unusually warm winter, increased supply decline in demand for electricity in many countries, of from renewables, and a slump in commodity prices the order of 10% or more relative to 2019 levels over a (S&P, 2020). Such low prices create a challenging period of a few months, thereby creating challenging environment for many electricity generators, including conditions for both electricity generators and system nuclear plants. France’s EDF saw a 1% drop in its operators (Fig. 8, left panel). Early IEA projections fi rst quarter revenues. Similarly, Russia’s Rosatom anticipated a 2% reduction in global electricity usage experienced a signifi cant demand drop in April and May for the entire year 2020, with a record 5.7% decline 2020, contributing to an 11% decline in revenues for the foreseen in the United States alone (IEA, 2020d). fi rst fi ve months of the year (President of Russia, 2020). Electricity generation from fossil fuels has been The competitiveness and resilience of low carbon particularly hard hit, due to relatively high operating technologies have resulted in higher market shares costs compared to nuclear power and renewables for nuclear, solar and wind power in many countries and simple merit order effects. By contrast, low- during the initial three months of lockdowns. carbon electricity prevailed during these extraordinary Market conditions in the United States, India, Brazil circumstances. In the fi rst weeks of the lockdowns, or the Ukraine were noticeably favourable to solar and the contribution of renewable electricity rose in many wind generation (Fig. 9, top panel). Severe restrictions countries thanks to low operating costs, priority on movement in China during early February led to dispatch and favourable weather conditions (Fig. 8). an overall 6.8% contraction in activity during the fi rst Along with other measures, including curtailment of quarter, forcing power production to dip by more than renewable generation in some cases, this has enabled 8% year on year: coal power decreased by nearly 9% grid operators to maintain a reliable system and largely and hydropower by 12% due to a dry season (Tan and avoid supply disruptions despite the challenging Cheng, 2020). conditions, while also accommodating increased Nuclear power generation also proved to be shares of low-cost, variable renewable generation. resilient, reliable and adaptable. The nuclear The contraction in electricity demand during the industry rapidly implemented special measures to fi rst lockdown accelerated recent reductions in cope with the pandemic, avoiding plant shutdowns electricity prices, below already economically- due to COVID-19, despite impacts on workforce and unsustainable levels. The most noticeable impacts other supply chain challenges. With an average 2% of the pandemic on the power sector occurred during reduction only during the lockdown, nuclear has proved

Figure 8 – Weekly change in electricity demand relative to 2019 (left panel) and relative to week prior lockdown (right panel) in selected jurisdictions (Mar. 15–Jun. 6)9

Weekly change in electricity demand relative to 2019 Weekly change in electricity demand relative to week (March 16-June 7) prior lockdown (March 16-June 7) 0 0 1 1 2 2 1 1 2 2 3 3 4 4 5 5 6 6 7 7 8 8 9 9 1 1 1 1 1 1 k k k k k k k k k k k k k k k k k k k k k k k k e e e e e e e e e e e e e e e e Average e Average e e e e e e e e e e e e e e e e e e e e e e e e e e e e e change e change e W W W W W W W W W W W W W W W W W W W W W W W W

1 Ukraine 1 USA 2 Sweden 2 India 3 Korea 3 Korea 4 Ontario 4 Ontario 5 USA 5 Germany 6 Germany 6 Brazil 7 Brazil 7 Sweden 8 UK 8 UK 9 France 9 Ukraine 10 India 10 France

-28% 12% -31% 15%

Weekly change in low carbon electri12city generation (March 16–June 7) relative to 2019

Nuclear electricity generation Solar and wind electricity generation Other renewable electricity generation 0 0 0 1 1 1 2 2 2 0 0 0 1 1 1 2 2 2 3 3 3 4 4 4 5 5 5 6 6 6 7 7 7 8 8 8 9 9 9 1 1 1 1 1 1 1 1 1 k k k k k k k k k k k k k k k k k k k k k k k k k k k k k k k k k k k k k k k e e e e e e e e e e e e e e e e e e e e e e e e e e e e e e e e e e e e Average e e e e e e e e e e e e e e e e e e e e e e e e e e e e e e e e e e e e e e e change e e e W W W W W W W W W W W W W W W W W W W W W W W W W W W W W W W W W W W W W W W

1 Ukraine

2 Brazil

3 Korea 4 Sweden 5 UK

6 France 7 India 8 Ontario 9 Germany

10 USA

-50% 211%

5% r Lower nuclear and Ukraine Higher nuclear l a

s ) higher wind & solar and wind & solar t

s o Brazil i n & o 3% USA p d India e g w i n a Korea, Rep. of

- France f o

% 0% e (

r Germany a n i o s h t

a UK e r Ontario g e -3% n n a e

g Lower nuclear Sweden Higher nuclear and

C h and wind & solar lower wind & solar -5% -10% -8% -5% -3% 0% 3% 5% 8% 10% Change share of nuclear generation (% -age points)

9 0% 1 0 2 After lockdown v s start 0

2 -20% 0 2 i n i c e r -40% p y i c t

r Before lockdown

c t start

l e -60% e e g a r

v e -80% A S. California Mid-Atlantic UK (GB) Ontario Germany France Sweden (SP-15) (PJM) (SE1) reliable globally. Nonetheless, nuclear generators swiftly of 2020, the US EIA’s Short-Term Energy Outlook saw adapted to the changed market conditions. Faced with the share of nuclear generation increasing by more than signifi cant decreases in demand, nuclear generators one percentage point compared to 2019, despite the curtailed output to maintain the grid stability. Along general disruptions from the crisis. The performance with other measures, this has enabled grid operators of nuclear power demonstrates how it can support to maintain a reliable system and largely avoid supply the transition to a resilient, clean energy system well disruptions Wdespiteeekly cha ngethein e lectchallengingricity demand r elaconditions,tive to 2019 beyondWee thekly c hCOVID-19ange in elec trecoveryricity deman phase.d relative to week (March 16-June 7) prior lockdown (March 16-June 7) while also accommodating increased shares of low- 0 0 1 1 2 Despite the demonstrated performance2 of a 1 1 2 2 3 3 4 4 5 5 6 6 7 7 8 8 9 9 1 1 1 1 1 1 k k k k k k k k k k k k k k k k cost, variable renewable generation. In France,k EDF k k k k k k k e e e e e e e e e e e e e e e e Average e Average e e e e e e cleaner energy system through the crisis toe provide e e e e e e e e e e e e e e e e e e e e e e change e change e W W W W W W W W W W W W W W W W increased the periodicity of its load following operationsW W W W W W W competitive, reliable, low carbon electricityW when to accommodateUkraine variable renewable generation (EDF, USA 1 1 needed, challenges remain in both mid and long 2020). In theS wUK,eden nuclear played a big part in almost India 2 2 terms. Combined with the broader fi nancial fallout eliminating3 coalKore generationa for over two months (Fig. 9, Korea 3 of the crisis on national and corporate budgets, as mid 4panel) (Cockburn,Ontario 2020). EDF Energy was able to 4 Ontario well as latent risks associated with supply chain respond5 to theUS Aneed of the grid operator by curtailing 5 Germany reorganizations, current conditions could impede the sporadically6 Gtheerma ngenerationy of its Sizewell B reactor to 6 Brazil required investments in the clean energy transition, ensure7 stabilityBra zofil the electricity grid. In the Republic of 7 Sweden with longer term consequences on the achievement of Korea,8 the shareUK of nuclear generation rose by almost 9 8 UK 9 France climateUkr agoals.ine percentage points during the pandemic. For the whole 9 10 India 10 France Figure 9 – Weekly change in low carbon electricity generation (March 15–June 6) relative to 2019 in selected jurisdictions (Top panel); Change in nuclear, solar-2 8and% wind generation market shares since12% start of lockdowns -3(mid1% panel); Average impact on 2020 1electricity5% prices vs 2019 before and after lockdown starts10 Weekly change in low carbon electricity generation (March 16–June 7) relative to 2019

1 Ukraine 2 Brazil

3 Korea 4 Sweden 5 UK

6 France 7 India 8 Ontario 9 Germany

10 USA

-50% 211%

5% r Lower nuclear and Ukraine Higher nuclear l a

s ) higher wind & solar and wind & solar t

s o Brazil i n & o 3% USA p d India e g w i n a Korea, Rep. of

- France f o

% 0% e (

r Germany a n i o s h t

a UK e r Ontario g e -3% n n a e

g Lower nuclear Sweden Higher nuclear and

C h and wind & solar lower wind & solar -5% -10% -8% -5% -3% 0% 3% 5% 8% 10% Change share of nuclear generation (% -age points)

9 0% 1 0 2 After lockdown v s start 0

2 -20% 0 2 i n i c e r -40% p y i c t

r Before lockdown

c t start

l e -60% e e g a r

v e -80% A S. California Mid-Atlantic UK (GB) Ontario Germany France Sweden (SP-15) (PJM) (SE1) 13 MORE FLEXIBLE SYSTEMS TO ENABLE THE TRANSITION

Tomorrow’s electricity systems, the backbone In France, fl exible operations of the extensive of broader energy networks, will require fl exible nuclear fl eet accommodate the variability of other oversight to maintain reliable and clean power electricity sources, a growing trend among nuclear services. Electricty systems will be inherently more nations (Patel, 2019). Between 9-12 May 2020, nuclear distributed, embedding both large and smaller production varied by 10 GW, mobilizing 44% to 60% production units tapping the full potential of local and of its installed capacity, far from nominal power (Fig. clean energy sources – By 2070, 3 600 GW of rooftop 10, ). Similar patterns albeit with smaller amplitude solar PV coud be integrated into buildings envelopes emerge from nuclear plants in e.g. Germany, Slovakia, (IEA, 2020e) – and using long distance transmission Czech Republic, Belgium, Finland, Switzerland, networks to monitor system imbalances (Oudalov, Hungary and the United States. Exports are minimized 2020). Digital technologies will be increasingly when electricity spot prices are the lowest (Fig. 10, ). important to monitor the system complexity, incl. real- Gas peaking units are sporadically mobilized when time consumer behavior and fl exible storage. higher levels of demand kick in (Fig. 10, ). A closer look at electricity mixes in France and Portugal’s system fl exibility and its security of Portugal shines a light on two polar approaches to supply hinge on large pumped storage capacities system fl exibility. Mix compositions differ, but both and its integration with the Spanish grid. On 9 May countries already feature large shares of dispatchable 2020, a surge of wind and solar generation and cheap low carbon electricity sources. Both countries also aim imports supplied large electricity needs (Fig. 10, ). for further integration of variable sources of electricity. As wind died down, solar power plummeted, and trade

France’s carbon intensity of electricity is under 50 gCO2 cut off by high import prices, hydropower took over at per kWh, i.e. ten times less than the G20 average while full capacity (Fig. 10, ). On May 12, a new peak in

Portugal’s lies at around 250 gCO2 per kWh, close to demand was met with hydropower and fossil fuel units the European Union’s average (ICTP, 2018; EDP, 2018). operating at full capacity (Fig. 10, ).

Figure 10 – Power generation mixes and spot prices of electricity France (left panel) and Portugal (right panel), 9-12 May 202011

30 30

20 20

10 10

EURO per MWh 0 EURO per MWh 0

-10 -10

France Portugal

60  8     Net Imports 

30 Maximum 4 Minimum nuclear nuclear generation Gigawatts Gigawatts generation 37GW 27GW

0 0 Net Exports Net Exports Max Energy stored Min nuclear gen nuclear gen 37GW 27GW 9 May 20 10 May 20 11 May 20 12 May 20 9 May 20 10 May 20 11 May 20 12 May 20 00:00 - 01:00 06:00 - 07:00 12:00 - 13:00 18:00 - 19:00 00:00 - 01:00 06:00 - 07:00 12:00 - 13:00 18:00 - 19:00 00:00 - 01:00 06:00 - 07:00 12:00 - 13:00 18:00 - 19:00 00:00 - 01:00 06:00 - 07:00 12:00 - 13:00 18:00 - 19:00 00:00 - 01:00 06:00 - 07:00 12:00 - 13:00 18:00 - 19:00 00:00 - 01:00 06:00 - 07:00 12:00 - 13:00 18:00 - 19:00 00:00 - 01:00 06:00 - 07:00 12:00 - 13:00 18:00 - 19:00 00:00 - 01:00 06:00 - 07:00 12:00 - 13:00 18:00 - 19:00

Thermal (fossil and Energy storage (Pumped Hydropower Nuclear Solar Wind Regional electricity trade biomass) hydro)

14 The Iberian Peninsula grid operates in relative also operated in continental Europe. The International isolation due to a lack of interconnectors with the Hydropower Association sees potential for a 50% rest of continental Europe. The proposed Biscay increase in pumped storage capacity within ten Gulf interconnector is expected to fi ll this gap, at an years. Such projects developments and their uneven estimated cost of EUR1.9 billion and annual benefi ts geographical distribution remain insuffi cient to in the order of EUR250-290 million (EC, 2016). The absorb future demand shocks, avoid curtailment, and innovative Frades II pumped storage station also accommodate the system integration of fast-growing plays a key role in the system stability: Variable speed non-dispatchable capacities. turbines allow for frequency regulation (Larson, 2018). The ongoing physical and digital transformations A large pumped-hydro project under construction on require the development of additional fl exibility the Tâmega river will alleviate the reliance on coal by options. Solution developers are now turning 2023 and will help achieve the swift decarbonization of to innovative energy storage solutions. The US the Portuguese electricity sector. Department of Energy recorded almost 1,300 projects As shown by the previous examples, historically, worldwide covering a wide array of technological network operators have ensured market clearance options, 80% of which are operational (Fig. 11, right thanks to regional interconnectors, dispatchable panel). With more than 40% of the counts, lithium- power generation units, including natural gas ion battery designs have become the most common assets, but also pumped storage hydropower source of storage capacity. They now offer a full range plants. Hydropower plants equipped with pumped of services across various timescales. Their fl exibility storage have long been instrumental to match and their ability for quick smoothing and fi rming of available sources of electricity supply with customers’ electricity production have raised interest among needs. Almost 170GW of pumped storage capacity operators of variable renewables sources. Lithium-ion is operated worldwide, storing up to 9,000 gigawatt batteries are also becoming increasingly capable of hours of electricity each year, equivalent to a third of performing scheduled time shifting of renewables over global generation (Fig. 11, left panel). Almost half of longer durations, depending on economic conditions these power plants are located in China, the United and local regulations. States and Japan. Smaller yet signifi cant capacities are

Figure 11 – Global mapping of energy storage capacities (left panel); Project developments of emerging storage technologies (right panel)12 s e i e s t h u a g n t r r n d

a Total number of projects: 1,269 l S o S t a e n y r c o u s t o a d a , c e a n m e r e r a n a t z e e t e n i r y i i r a i l a n d i n h r F S w I t a I n O t h O t h K o U J a p S p G e C

100% ery � ery Technology breakdown � Lithium-Ion Ba (42%) Molten Salt Molten (3%) Other Ba (22%) Compressed Air (1%) Electro-Chemical (13%) Flywheel (4%) Other (15%)

75%

50% Operational Under Contracted Announced (1030) construction (76) (152) Avg. (11) project 6 MW 56 MW 9 MW 13 MW 25% size Project destination

0% 0% 16% 31% 45% 67% 94%100% High Upper Lower Low Pumped storage global capacity 190GW 9GW Income Middle Middle Income (89%) Income Income (2%) ■ Under (7%) (2%) ■ Contracted ■ Announced ■ Operational Construction

15 The fast-evolving energy storage landscape hundred gigawatts of hydropower capacity built since suggests signifi cant potential for scalability. The 2010 and fi fty nuclear reactors under construction average project size of lithium-ion battery projects corresponding to fi fty-three gigawatts of new capacity) (6MW) remains small compared with other types will strengthen the security of supply. of storage technologies. But utility-scale lithium- The innovation path and the falling cost of battery ion systems with capacities greater than 10 MW and systems give room for exponential growth in the increasing storage durations have been commissioned coming years. In a decade, the cost of a lithium-ion worldwide in recent years. Some plants in California 1 kWh battery pack — enough capacity to propel an can run up to four hours (Research Interfaces, 2018). electric vehicle for six kilometers — saw more than a Compressed air solutions and molten salt thermal 7-fold decrease, down to $156. The storage capacity storage, a highly effi cient process for 10-hour storage installed globaly ramped up from 1 GW to over 10 GW in or more, and best combined with large solar farms, are less than three years. Bloomberg New Energy Finance fewer but much larger in scale, in the order of 60-70 sees the $100 per kWh threshold reached within the MW (Dieterich, 2018). Overall, the average capacity next three years (BNEF, 2019). However, standalone of the storage projects announced is more than 50% applications remain costly to run outside peak hours. larger the operational projects. Once combined with solar PV systems, the levelized Energy storage is vital for the cost-effective cost of electricity — a suitable metric to assess the transition towards decarbonized electricity competitiveness of baseload generation sources — systems. Battery storage installations are expected falls under $100 per MWh (Fig. 12, right panel). Against to become standard components of energy this backdrop, the International Energy Agency projects infrastructures. As illustrated in previous sections, around 220 GW of capacity installed globally by 2030 clean and non-dispatchable electricity has gained a lot of to accompany the aggressive deployment of solar and ground globally in ten years, driven by strong innovation wind and meet the Paris Agreement objective. This is and various schemes to guarantee operators’ revenues. half of the 2030 requirements in pumped-hydro capacity One thousand gigawatts of new capacity have been alone (IRENA, 2020b). Some projects recently stalled connected to the grid since 2010, with strides also made due to the pandemic but market interest remains strong. off the grid in South Asia and Africa (Fig. 12, left panel). Wood Mckenzie, among other observers, predicts that Variable renewables, now on par with conventional wind and solar, backed with storage solutions, are sources of power, have established themselves as low- poised to dominate Europe’s power grid by 2030 thanks risk options for governments and investors to realize to attractive risk/return profi les and despite increasing their decarbonization objectives. They will live up to exposure to power market conditions (Wood Mckenzie, their promise only with competitively priced storage 2020). The electrifi cation of mobility services will also solutions that can maintain overall system reliability. boost the emergence of the storage industry, beyond The progression in dispatchable electricity (incl. three stationary applications in the power sector.

Figure 12 – Market dynamics for batteries and other low carbon options, 2010-201913

Dispatchable Non-dispatchable Nuclear renewables renewables Unsubsidized levelized cost of storage 9 1 0

2 1200 Commercial & Industrial (Standalone)

392GW 1,325GW 1,209GW

h 900 W M

r Residential

p e (PV+Storage) 0 1 a r l 0 l o 2

D 600 S

U Commercial & Industrial (PV+Storage) 375GW 1011GW 223GW LCOE Hydro Wholesale 300 Nuclear LCOE Gas Hydro Onshore wind Wholesale LCOE Nuclear (LTO) (PV+Storage) Biomass Offshore wind

Other Solar photovoltaic 0 Concentrating 2019 2020 2019 2020 2019 2020 2019 2020 2019 2020 solar power

16 Most projects are currently concentrated in high A lack of flexibility options to address resource income countries. The next frontier is deployment inadequacies and respond to market swings can in lower income countries. The World Bank sees lead to undesirable and harmful outcomes, ranging battery storage as a critical vector of rural electrification from extreme price volatility to service disruptions. as well as more reliable grid-based electricity services. In January 2020, a combination of extreme temperatures A $1 billion catalytic fund was provisioned and is looking and the collapse of grid interconnections in South to mobilize another $4 billion in concessional climate Australia created a surge in wholesale electricity prices financing and other public and private investments to a huge $14,700 per MWh during one hour, with prices (World Bank, 2018). Indian policy-makers also count on remaining very high for the subsequent one and half low-cost lithium-ion batteries to enhance the rollout of hours. The regulator’s emergency response cost $8 their solar ambitions and meet demand peaks (Ranjan, million (AEMO, 2020). A market cap of $9,000 was also 2020). reached during the 2019 summer in Texas as demand for air conditioning ballooned (Rhodes, 2019). Soaring Storage-centered policy and regulatory electricity prices are also observed occasionnaly on frameworks, as well as dedicated financial European wholesale power markets. The dire situation incentives, will turn technology readiness into experienced in recent years in California, with rolling a market reality. Regulatory frameworks must blackouts and renewables curtailement, also generated recognize storage as a source of energy on its own. price hikes. Very few jurisdictions are yet ready to accommodate and compensate storage services, in particular in their Solutions for demand-side response provide ability to improve system stability, perform peak shaving extra layers of flexibility to grid operators. They and provide fast primary frequency response. The are progressively developed and implemented emergence of new system-based metrics to assess the to improve the overall performance of electricity competitiveness of electricity sources and transform markets. Energy management and behind-the-meter the remuneration of operators, may prove useful to solutions, incl. on-site generation and mini-grids, offer price storage services adequately. For now, storage is great potential to monitor residential consumption, particularly valuable in small, inflexible systems. A suite reduce electricity bills and alleviate resource of financial incentives commonly used for e.g. wind and inadequacies by shifting power consumption to periods solar technologies are under examination and could be of lower rates. Optimized grid management, better transposed and adapted to batteries: Fiscal exemptions operations of existing assets, more regular maintenance such as investment tax credits to foster investments; scheduling and enhancement of transmission and power purchase agreements for storage operators to distribution networks also defer and/or minimize costly guarantee firm energy delivery to a customer; other network upgrades, particualrly in low to middle income forms of production support incl. storage mandates countries which suffer from chronic underinvestments and production tax credits. in network infrastructures. Innovative solutions will also need to address “Sector coupling” will reinforce the centrality of growing concerns over the possible shortage of distribution networks, embedding them with end- minerals required for battery manufacturing and use sectors, and forming a dense and interoperating the overall sustainability of supply chains. Current energy supply infrastructure. Digital technologies battery designs require raw commodities which can greatly improve grid resilience and the integration entail polluting extractive activities and come at odds of distributed energy resources, commercial, industrial with sustainable development objectives (Scheyder, and residential storage units as well vehicle batteries. 2019). Several regional and global initiatives, as well Batteries then operate as “virtual power plants”, acting as industrial coalitions, are burgeoning to circumvent as buffers between conventional sources of power and these issues, simplify chemistry and invigorate the load centers. deployment of more local and sustainable value chains. Clean hydrogen, produced from low carbon For example, the Global Battery Alliance proposed a electricity, may also emerge as another valuable transparency-based “Battery Passport” to ascertain source of large-scale and long-term, seasonal the chemical composition and quality standards of storage capacity. Multiple projects are under batteries, encourage material recycling and prevent development around large industrial clusters in the US, child labour. The European Union announced a EUR350 Europe and East Asia to demonstrate the economic million investment to build a battery factory in Sweden viability and accelerate the uptake of hydrogen to take advantage of its clean power base and its technologies. Technology-neutral policies will foster experience in process manufacturing and recycling. project delivery and will help tap the full clean hydrogen potential.

17 SETTING THE GLOBAL DECARBONIZATION IN MOTION: ALL ROADS LEAD TO CARBON NEUTRALITY

Assuming economic activity post-pandemic will Every prospective effort to identify decarbonization eventually resume to normalcy, stringent climate strategies shows a swift displacement of unabated objectives can only be met if all countries pursue fossil fuels and a convergence towards clean every effort to deploy low carbon technologies. energy technologies in both the power sector and The pace of progress required at the national and fi nal energy use. The IEA Sustainable Development more local levels will differ based on circumstances, Scenario provides the details of a possible pathway incl. the periodicity of revisions of policy, regulatory and integrates the vast array of measures percolating and fi nancial incentives, the creditworthiness of through the entire energy systems (Fig. 13). This jurisdictions and businesses, the availability of skilled scenario serves as a reference to most IPCC scenarios labour force, projects bankability, the nature of existing with century-long timescales (IPCC, 2018). energy infrastructures and other built environments.

Figure 13 – A phased approach to decarbonization: Illustration with the IEA Sustainable Development Scenario, 2018-204014

Carbon intensity of electricity (gCO2/kWh)

1000 ZAF

800 IND RUS CHN

SEA 600

JPN

USA 400

200

Long term target 50gCO2/kWh

0 0 0 9 4 3 1 0 0 0 2 2 2

120 2019 ) USA 2040 D P G

0 100 0 0 1 $ r e

p 80 e o

t JPN (

D P 60 G f o EU y RUS

s i t CHN n

e 40 t i n

y ZAF

i c t World r

c t 20

l e SEA E IND 0

10 20 30 Per capita electricity consumption (toe per capita)

18 Decarbonizing in full force translates into a sea Taking the high road to decarbonization, through change in global electricity supply. By 2040, over systematic deployment of energy-saving options, 80% of electricity is low carbon, more than double favouring synergies across transport, digital, current levels. The IEA scenario projects a vast and heating, cooling and industry sectors, will bring generalized deployment of renewable electricity, about sizeable reductions in CO2 emissions and supplying 72% of electricity needs, two-thirds of which will likely transform our economic structures. The generated from variable sources alone. Hydropower global convergence towards clean energy sources and nuclear capacities broadly maintain their shares greatly reduces the overall carbon footprint of energy. in the mix (resp. 17% and 11% in 2040). They provide In the next two decades, power and end-use emissions dispatchable and low carbon power, thus ensuring could be two-thirds lower than their current level (Fig. the stability of systems jointly with battery storage 14). The right level of political ambition could lead to capacity. As a result, the carbon intensity of electricity widespread access to modern, clean and reliable drops rapidly in all countries, particularly in high income energy services, generate value and employment economies which can reach levels lower than the 50 opportunities, redistribute the composition of goods gCO per kWh threshold in about two decades. 2 and services across the entire value chain. An exponential change is needed in energy end- The pandemic laid bare the vulnerability of our use. The widespread availability of clean electricity societies to external shocks, triggering further fosters the electrification of energy end-use and commitments from public and private leaders to the adoption of other clean fuels in hard-to-abate address climate change. A wave of even stricter sectors. With the right policies and regulations in place objectives than what is depicted in the IEA Sustainable and a clear reorientation of private businesses’ strategy, Development Scenario, i.e. numerous carbon neutrality almost half of final energy needs are covered by clean objectives newly-set by numerous countries, is energy sources by 2040. According to the IEA scenario, expected to achieve a faster-track decarbonization, the buildings sector, the largest sector in terms of with net-zero emission levels reached by mid-century. energy use, is the quickest to embrace electrification. Under these revised ambitions, the construction of new, China, the United States and the European Union low carbon infrastructures would not suffice. Existing offers vast potential for early adoption of clean fuels. infrastructures may have to be retrofitted or dismantled, By contrast, the decarbonization of transportation potentially with great economic and social costs. remains only nascent in 2040 despite strides expected Reaching a 1.5°C target may also require technologies in the European Union where up to 35% of mobility that are yet to be developed, incl. carbon dioxide needs could be electrified. Each country, jurisdiction, removal and nuclear heat applications (IEA, 2021). constituency should identify its own pace and means of the transition, but all pointing to a rapid acceleration in their implementation.

Figure 14 – Country emissions from electricity generation and final energy use in the IEA Sustainable Development Scenario, 2018-204015

China United States India Russia Middle East European Union Southeast Asia Japan South Africa

Total

Natural gas 2019 Oil

Coal

Electricity generation

-77% -54% -54% 2040 -97% -80% -82% -64% -86% -93%

China United States India European Union Middle East Southeast Asia Russia Japan South Africa

Total Natural gas 2019 Oil

Coal

Final energy use

-59% -61% +6% -20% -18% -27% 2040 -75% -62% -33%

19 FROM RECOVERY PACKAGES TO LOW CARBON FINANCE

The response to the pandemic has shown that the economic downturn left a void in many national extraordinary circumstances can be met with accounts. Support to the healthcare sector was extraordinary measures. The transition to a net prioritized for immediate public disbursements, incl. zero economy requires fi nancial commitments from international fi nance institutions, leaving energy of equivalent magnitude. Without vast spending projects with fewer credits. directed to economic stimulation, targeting notably Clear and timely policy incentives are of the the most vulnerable communities and businesses, essence. To date, public announcements to the global COVID-19 outbreak would be a drag on organize the recovery around clean energy our economies and social welfare for many years. opportunities remain largely at odds with climate According to early estimates into the crisis, the amount change and sustainable development strategies of money necessary to alleviate the worst impacts of (UNEP, 2020b). The commitments made by G20 the economic recession at play, bail out businesses and countries, responsible for 85% of global emissions, fall restore employment, lies around $12 trillion (Gopinath, well short of prioritizing low carbon solutions over fossil- 2020). In this context of massive public spending, related investments. At the time of writing, only 38% of decision-makers can take decisive actions that will set their $650 billion commitments in support of the energy in motion an orderly decarbonization of energy. The sector, through new or amended policies and direct investments realized in the coming fi ve to ten years project fi nancing, are directed to clean energy (Fig. 15). will determine our ability to reach net zero emissions Fossil fuel projects are prioritized. Fifty-three percent of targets by mid-century. these commitments may accrue to the mobility sector, Private sector leaders, fi nanciers and the civil often perceived as transformative and central to many society see a historic opportunity to design high- sustainable development strategies. Mobility offers stakes recovery plans with a green focus, in line greater potential to leverage economic activity across with climate change objectives. But the deep the board. By contrast, only 17% of public support may economic recession the world entered in 2020 serve clean energy projects in the electricity sector, leaves policymakers with little room to manoeuvre. which will have to rely more on private sector funding. The access to borrowing, the levels of public and Capital-intensive projects with long leading times such private debt prior to the crisis, the domestic innovation as nuclear or concentrating solar power may not offer landscape and the degree of healthy governance all enough return on investment in the mid-term to meet drive COVID-19 responses by individual countries eligibility criteria from some governmental agencies. (Gaspar et al., 2020). Shrinking fi scal revenues following

Figure 15 – Public money commitments made by G20 countries to fossil fuels, clean and other energy in recovery packages, USD billion, as of 19 May 202116

20 Climate considerations and risks, now perceived Gutteres, to phase out coal plants are finding more as key sources of financial instability by numerous and more echo worldwide. New coal projects may be central banks, financial actors and businesses, are increasingly difficult to finance. Dozens of global banks, also expected to guide energy investments in the insurers, pension funds and asset managers, more than longer term. Central banks now multiply initiatives to 140 globally significant financial institutions in total, address physical risks inherent to climate change and have already put in place coal exit policies (Buckley, other risks of asset depreciation during the energy 2020). Declining utilization rates of existing coal power transition that may threaten financial stability. A high- plants, the closure of non-competitive assets averaging level Task Force on Climate-related Financial Risks 35GW per year, and other environmental regulations, was recently established for oversight by the Basel triggered a fall in coal demand in 2020. The net-zero Committee on Banking Supervision (BIS, 2020). Another emission targets newly announced by China, Japan and Task Force on Climate-Related Financial Disclosures South Korea, key funders of coal projects worldwide, was created in 2015 by the Financial Stability Board to are expected to accelerate this trend among coal-client develop consistent reporting frameworks for climate- countries. The Philippines and Thailand also intend to related financial risk disclosures. The European Central curb their heavy reliance on coal and are now taking Bank also encourages its constituencies to use green advantage of more competitive low carbon alternatives bonds, earmarked to finance investment projects with to fuel their economic development. New South Wales, an environmental benefit, to stimulate the economic home of a third of the Australian population, also recovery and tackle climate challenges. These new announced a comprehensive roadmap to phase out opportunities serve as guiding principles in revised coal installed capacity within 15 years (NSW, 2020). climate strategies of the World Bank, the European Investment Bank and a growing number of institutional Solar PV and wind power technologies have now investors. established themselves as default options to most financiers, policymakers and operators. Current Climate risks can be mitigated with new investment volumes remain largely insufficient underpinnings of capital investments, with sizeable to operationalize the energy transition and reach payoffs in terms of value and job creation. There carbon neutrality by 2050. More than $600 billion is a growing interest among investors to factor in are invested yearly in clean electricity infrastructures climate science in their own decision strategies. 137 (Fig. 16, left panel), with half of the spending delivering global financial institutions, with nearly US$20 trillion yearly about two hundred gigawatts of new renewable in assets, recently urged companies over 1,800 high- capacity. Energy efficiency measures require roughly emitting companies to set science-based mitigation $250 billion. The International Energy Agency projects targets in line with net zero emissions by 2050. We almost a doubling of overall investment efforts by 2030 Mean Business – a coalition of about 1,400 business to maintain temperatures below 2ºC (Fig. 16, right players and a $24 trillion market capitalization, united panel), with a seven-fold increase in battery storage to catalyse business action and drive policy ambition to investments. But the objective of carbon neutrality accelerate the zero-carbon transition – estimates that by 2050 can only met with a tripling of clean energy a green recovery could deliver a 7% reduction in 2030 investments within ten years (IEA, 2020a). A third of emissions compared with 2019 levels with millions of spending should be dedicated to the expansion and the new jobs at stake (Cambridge Econometrics, 2020). modernization of power grids to foster the integration of McKinsey estimates that a EUR75-150 billion spending all clean energy sources. on a balanced low carbon stimulus in Europe, could deliver at least twice more value creation, generate The pandemic left investors’ appetite for renewable 1-3 million jobs and eventually cut European emissions electricity solutions largely unaffected. After a in 2030 by up to 30% (McKinsey, 2020). Empirical slowdown of capacity additions and delays in firm evidence confirms that green spending generates investment decisions during the first semester of better returns to investors and higher economic growth 2020, renewable constructions resumed by year end. than environmentally detrimental measures (IEA and The investment pipeline points to an acceleration of ICBS, 2021; Batini et al., 2021,). Strengthening power renewable newbuilds in the next few years (IEA, 2020f). grid and low carbon electricity projects are considered Nonetheless, only 62 renewable power projects worth key vectors of job creation. $17 billion have been confirmed by G20 countries so far. The European Union’s stimulus funds have attracted As governments prepare for the submission of more than a thousand green project applications worth revised climate objectives and are still trying to $200 billion (Chestney, 2020). But the bleak economic kickstart their economies more sustainably, coal prospects anticipated for 2021 may discourage private investments may finally come to a halt. Recent calls investors to support the rollout of the most capital- from global leaders, including UN Secretary General intensive proposals.

21 Figure 16 – Global cumulative investments in low carbon technologies (annual average 2015-2019) and low-carbon power-sector requirements in line with the Paris Agreement (annual average 2020-2040)17

Nuclear investments have been relatively stable select low carbon options over fossil fuels. Between in recent years. But current levels of spending are 2016 and 2018, the combined investments in nuclear and misaligned with the climate mitigation potential of renewable capacities in China and India alone attracted nuclear power. About $35 billion are invested each a third of global low carbon energy investments. The year in nuclear developments. Almost half of nuclear International Finance Corporation sees a $23 trillion investments were recently made in China whereas opportunity in green investments to 2030 in emerging nuclear power dominates clean electricity investments markets, in which climate lending volumes for the in the Russian Federation. About 30% of this spending next decade are poised to grow four times as fast as goes to existing plants for long term operations, conventional lending (IFC, 2016). The bankability of affecting about 40 GW of the capacity installed globally. emerging economies, their general lack of liquidity and Despite the need to double nuclear investments, their insufficient access to climate finance still impede financing new nuclear projects may be challenging in the deployment of low carbon technologies. a context of drained public resources the near term. Public financing institutions will have a critical role Conversely, nuclear projects are gaining interest among to play to align the pandemic response with climate some institutional investors, incl. pension funds, as policy objectives. Clean energy projects may not only well as private investors seeking to decarbonize their be examined in the light of their financial returns but portfolios and support technological innovation. should also bring about significant economic returns. The majority of climate investments will need to be They may also address suboptimal market situations by realized in emerging markets. The energy transition integrating shadow carbon pricing beyond financial rates should act as an engine of inclusive green growth. A of return of low carbon projects. Projects integrating sustainable and successful transition will allow all innovation and which give room for technology spill- countries, irrespective of their size and wealth, to take over may also be rated more favourably. advantage of their local natural resource endowments,

22 LINKING UP LOCAL POLLUTION AND CLIMATE CHANGE AGENDAS

The enforcement of lockdowns and other measures life expectancy by anywhere between 2 and 24 to restrain economic activity and contain the months, depending on pollution levels (CCAC, 2018). pandemic have resulted in better air quality Since 2010, CO2 emissions have decreased in high worldwide. Greater air quality and clearer skies were income countries but often kept on rising elsewhere. on full display in major cities such as Delhi, Mumbai, Populations living in lower income countries are more Seoul, Sao Paulo or Los Angeles, where the year-on- and more exposed to outdoor pollution (Fig. 17). Only year pollution concentrations dropped by 30% to 60% 4% of citizens living in low income countries enjoy good for several consecutive weeks (Dormido, 2020). air-quality environments. This compares with 63% in high-income countries. Thanks to more stringent Poor air quality is a major cause of respiratory regulations, the global emission factor of particulate disease. The World Bank ranked air pollution as the matter from coal power plants has dropped by about fourth-highest risk factor for attributable deaths – just 40%, with North America, Europe, and Japan benefiting below tobacco smoke. The WHO estimates that only from a 70–80 % decline. China saw more than a 70% 1 out of 10 people worldwide evolve in environments reduction, compared to only 20–30% in Russia and with satisfactory air quality. The situation is particularly other countries in Central Asia (Klimont et al., 2017). acute in South-East Asia and the Western pacific region where 4 million deaths are attributable to poor More and more leaders have come to terms with air conditions (CCAC, 2018). these challenges and are taking action both at the national and local levels. As governments are firming Air pollution and climate change differ in their up their national climate plans, more than 450 cities geographical scope and timescales. The former is by and 22 regions, and thousands of private companies, and large a local issue with immediate consequences already rallied the UNFFCC-backed Race To Zero on our daily lives, while the latter is a global and gradual global campaign to unlock inclusive and resilient phenomenon, with the most manifest impacts expected growth. Local governments are more and more mindful to occur within longer timeframes. of the 70% of global CO2 emissions generated by urban But air pollution and climate change have common lifestyles. These governments and their own policy- origins. Incomplete fossil fuel burning resulting from making organs in jurisdictions such as Tokyo, Mexico, e.g. trafic congestion, diesel engines ran by heavy or California, are expected to accelerate the rollout of industries and coal power stations, generates airborne their low-carbon plans post-COVID, in concertation particulate matters, the main cause of poor health with solution developers, asset owners and other and premature death in cities. These inefficient and institutional investors. Many examples of successful unsustainable energy production and consumption policies are developed in support of sustainable modes drive episodic and often recurrent spikes in public transportation, incl. rapid transit modes, low ambient air pollution, exposing primarily populations emission vehicles and other shared mobility solutions; from large conurbations. Natural elements, incl. waste sustainable environments are at the core of urban burning, wildfires, sand storms and volcanic acitivity, planning thanks to the refurbishment of buildings as well as weather conditions, including wind speed, with low emission footprints; clean technologies, incl. humidity an rainfalls, in addition to non-combustion nuclear plants, reduce industrial smokestack emissions processes such as quarrying, also have a strong or the deployment of efficient co-generation plants influence on air quality. supplying cleaner heat and power (WHO, 2020). Many The level of economic development and the municipalities are also deploying efforts to collect and analyse data, inform policy making, set targets and resulting carbon intensity of CO2 emissions are good predictors of air quality. According to the monitor progress. latest urban air quality database, 98% of cities in low- A swift transition to electrified energy use, and middle income countries with more than 100 000 particularly transport solutions powered by clean inhabitants do not meet WHO air quality guidelines. energy sources, has the potential to reduce greatly However, in high-income countries, that percentage the acute exposure to high concentrations of decreases to 56%. Ambient air pollution levels are particulate matters. The increasing appeal of battery- lowest in high-income countries, particularly in Europe, powered electric vehicles as well as fuel cells and the Americas and the Western Pacific. In European hydrogen applications in transport and heavy industries cities, air pollution has been shown to lower average are gaining political momentum in Europe, China, Japan

23 or South Korea. The emergence of alliances of clean- hinders the economy, food security and the environment hydrogen producers and industrial manufacturers, and reduces global economic growth by 3.3% each such as the European Clean Hydrogen Alliance, will year, as estimated by the World Health Organization. In contribute to the improvement of better air quality while 2015, air pollution-related healthcare costs amounted serving the climate change agenda. to $15 billion (OECD, 2016). According to the US Environmental Protection Agency, every dollar spent Air pollutants can also be transported over long in the US on air pollution control generates 30 dollars distances, hindering regional development. While of benefi ts, with much higher payoffs in lower income the adverse effects air pollution are mostly being economies. Measures taken to reduce air pollution observed at the local level, a large volume of air in Europe contributed to 15% of economic growth in pollutants can be transported over long distances recent years (Dechezleprêtre et al., 2020). and thus impact far away regions too. International cooperation efforts are deployed to coordinate action Better breathing conditions were short-lived after in this direction. For instance, the UNECE contributes the lockdowns. Ambient air quality deteriotrated to climate change mitigation through the Convention on shortly after traffi c congestion and industrial activity Long-Range Transboundary Air Pollution, which sets resumed, and coal power stations reignited (The emission targets for a number of key air pollutants. Economist, 2020). The response to the pandemic, rising ambitions to meet net zero emissons and the availability Addressing air pollution brings about direct public of technological solutions can lead to far-reaching and health and climate change benefi ts, improves well- visible benefi ts, in the form of clean air and blue skies. being, but is also economically sound. Poor air quality is not only detrimental to public health. It also

Figure 17 – Change in domestic CO2 emissions between 2010 and 2017 and breakdown of population exposure to local air pollution, 201718

Since 2010, CO2 emissions have decreased in high income countries but often kept on rising elsewhere.

SincePop u2010,latio COns 2li vemissionsing in low haveer in decreasedcome cou innt rhighies aincomere mor countriese and mo butre e oftenxpos ekeptd to onou risingtdoo relsewherepollution ... Since 2Populations010, CO2 em livingissio inn slowerhav eincomedecre acountriessed in h iaregh imorencom ande c omoreuntr iexposedes but o ftote outdoorn kept o pollutionn rising elsewhere. Populations living in lower income countries are more and more exposed to outdoor pollution...

-10.1% +9.1% High income countries -10.1% +9.1% T E N T T T T C P E R L L S R E R P T N N R N P U E L Y V K L G U N N G A D K A X U N O A B L L R N A I L I A Z L Z B Y S U A R R S E H E H U R A V A U K S R H T T G M O R R O V N R O W V R W U S S T R F I I I I G L J P E A T M P C E N B L N A A S Q C S P L B B C D C S C P F S A G K H H U K G N U H D

H S High income O Vceoruy nuntrhieeastlthy air quality= T E N T T T T C P E R L L S R E R P T N N R N P U E L Y V K L G U N N G A D K A X U N O A B L L R N A I L I A Z L Z B Y S U A R R S E H E H U R A V A U K S R H T T G M O R R O V N R O W V R W U S S T Unhealthy air quality= R F I I I I G L J P E A T M P C E N B L N A A S Q C S P L B B C D C S C P F S A G K H H U K G N U H D

H S Moderate air quality= O Very unheatlthy air quality= Good air quality= Unhealthy air quality= Moderate air quality= 63% of population in high income countries live in good air-quality environment Good air quality= 63% of population in high income countries live in good air-quality environment

-3.1% +18.7% Upper middle I E S S A L U B S B R N Z B X R F income countries U M E R R A Y M B M R -3.1% M +18.7% A A R N M Y M N H Q R I Y L N U A L Z A E T U U A Z H R E O O A U C G U B R R R K O B H W R R B C I I A Z B A L K J A J O L T S P T C R S G E D T B C M B C P A R N M M UM G M D Upper middle B Very unheatlthy air quality= I E S S A L U B S B R N Z B X R F income countries U M E R R A Y M B M R M A A R N M Y M N H Q R I Y L N U A L Z A E T U U A Z H R E O O A U C G U B R R R K O B H W R Unhealthy air quality= R B C I I A Z B A L K J A J O L T S P T C R S G E D T B C M B C P A R N M M UM G M D Moderate air quality= B Very unheatlthy air quality= Good air quality= Unhealthy air quality= Moderate air quality= 21% of population in upper middle income countries live in good air-quality environment Good air quality=

21% of population in upper middle income countries live in good air-quality environment Change in domestic CO2 emissions -8.5% +30.9% between 2010 and 2017 Lower middle Change in domestic CO2 emissions R R Z B R G L A D G D L A A O R B N O Y Decreasing Increasing N N M X income countries K A -8.5% V between 2010 and 2017 C N D +30.9% I Z A K N E D L M G E N H H D O K A G M U O G H G M K G D N N I I emissions emissions U L S T K K P Z U S B X P B H K A M G E C C G N M M LMower middle M Very unheatlthy air quality= R R Z B R G L A D G D L A A O R B N O Y Decreasing Increasing N N M X income countries K A V C N D Percentage of population exposed to I Z A K N E D L M G E N H H D O K A G M U O G H G M K G D Unhealthy air quality= N N I I emissions emissions U L S T K K P Z U S B X P B H K A M G E C C G N M M LM M ambient concentrations of PM2.5 Moderate air quality= Very unheatlthy air quality= Good air quality= Percentage of population exposed to % Unhealthy air quality= % % % % % % % % % 0

0 amb0 ient0 con0 centr0 ation0 s of0 PM20 .5 0 0 Moderate air quality= 1 2 3 4 5 6 7 8 9 11% of population in lower middle income countries live in good air-quality environment 1 Good air quality= % % % % % % % % % % 0 0 0 0 0 0 0 0 0 0 0 1 2 3 4 5 6 7 8 9

11% of population in lower middle income countries live in good air-quality environment 1 -16.7% +26.2% Very unnhealthy air quality environments: PM2.5 concentrations higher Low income than 35 micrograms per cubic meter (WHO Interim Target 1) I I Z E D L

R a N O N R H countries -16.7% A

T +26.2% R O P T E J K E E Y O Z Very unnhealthy air quality environments: PM2.5 concentrations higher G W H E T E T B S S

N Unhealthy air quality environments: PM2.5 concentrations between 25 N T Z C Low income M than 35 micrograms per cubic meter (WHO Interim Target 1) and 35 micrograms per cubic meter (WHO Interim Target 2) I I Z

Very unheatlthy air quality= E D L

R a N O N R H countries A T R

O a P T E J K E E Y O Z G W H Unhealthy air quality= E T E T B S S

N Unhealthy air quality environments: PM2.5 concentrations between 25 N T Z C L M Moderate air quality environments: PM2.5 concentrations between 15 Moderate air quality= and 35 micrograms per cubic meter (WHO Interim Target 2) Very unheatlthy air quality= and 25 micrograms per cubic meter (WHO Interim Target 3) Good air quality= a Unhealthy air quality= a Moderate air quality environments: PM2.5 concentrations between 15 Moderate air quality= Good air quality environments: PM2.5 concentrations lower than 15 4% of population in low income countries live in good air-quality environment and 25 micrograms per cubic meter (WHO Interim Target 3) Good air quality= micrograms per cubic meter (beyond WHO Interim Target 3) a 4% of population in low income countries live in good air-quality environment Good air quality environments: PM2.5 concentrations lower than 15 24 micrograms per cubic meter (beyond WHO Interim Target 3) FACTORING THE CHANGING NATURAL ENVIRONMENT INTO INVESTMENT DECISIONS

The occurrence of severe environmental conditions the transition must also factor in adaptation episodically affects infrastructures worldwide, considerations. Tailored regulatory frameworks, at great economic and social expense for asset resilience by design, innovative insurance and owners, insurers and local communities. In two reinsurance products are necessary for asset owners decades, extreme weather occurrences have caused to maintain operations under new environmental nearly half a million deaths and $3.5 trillion in economic norms. The representation of extreme-weather losses. G20 countries alone lost $2.6 trillion, with the events in energy planning must also be improved to greatest damages reported in the United States ($51 address the specific vulnerabilities of energy systems’ billion on average annually) (ICTP, 2020). components, incl. power generating assets and grids. The value of services provided by more robust power Energy infrastructures are as essential to our living infrastructures could also reward the intrinsic resilience standards as they are vulnerable to these extreme of certain assets. In this regard, nuclear power plants natural events. The power outages resulting from cold are particularly well positioned to face extreme weather and heat waves, water stress, storms and floods – which events, with limited forced outages on record due to are expected to increase in frequency and severity in the facility design and limited reliance on the fuel supply future due to the changing climate – already take a toll chains (Schweikert et al., 2019). The foregone nuclear across our societies. Billions of dollars are also spent production due to extreme weather occurrences over each year on repair, while many assets at risk remain at 2004-2019 is equivalent to 0.11% of the electricity best only partly covered by insurance policies (Fig. 18). produced during the same period (IAEA, 2020c). The challenges created by COVID-19, as well as the However, like every other energy asset, nuclear plants catastrophic cold snap seen in Texas in February are exposed to credit risks induced by climate change 2021, have also highlighted the need to ensure the (Moody’s, 2020). The ultimate credit impact depends built-in resilience of future energy systems and on operators’ ability to invest in mitigating measures. cope with a broader range of external shocks, Adaptation efforts pay off in the long term. Their including more variable and extreme weather upfront costs, designed to reduce the future costs patterns expected from climate change. Policies of climate disasters, often incurred by state-owned supporting the integration of all clean energy sources enterprises, are recovered in the long term. The are critical to build back better from the crisis by World Bank estimates that four dollars of future socio- creating more resilient systems and maintaining reliable economic losses can be saved for each dollar invested electricity services. in prevention measures and orderly-implemented plans The climate-smart investment decisions driving (Hallegate et al., 2020).

Figure 18 – Selected economic impacts of recent extreme weather events on infrastructures19

25 ALIGNING ACTIONS TO BUILD BACK BETTER

We could be at a turning point of the energy transition Policymakers and regulators need to adjust to a if decisive and consistent efforts are undertaken new political economy, characterised by the rapid by public and private stakeholders. As low carbon emergence of capital-intensive, non-conventional technologies have become default investment options sources of power, the transformation of supply for many financiers, the transition shows encouraging chains and an evolving geopolitical landscape. signs of progress. Nonetheless, the emergence of low Only new market and financing paradigms can deliver carbon electricity production, albeit steady, remains far a green recovery with perennial social, economic too slow to meet the Paris Agreement objectives. and enviromental payoffs, and ensure the financial viability and timely delivery of clean energy projects. Governments have a unique opportunity to change Low carbon investments are often realized outside the course of the energy transition through their the market, pushed by various fiscal and financial response to the historic economic downturn at incentives. A regulatory level playing field would foster play in 2020. Governmental leadership is also the deployment of all marketable and financeable low essential to establish clear pathways towards the carbon solutions, while addressing existing market reduction of greenhouse gas emissions and other deficiencies. toxic pollutants through to 2050 and beyond. The pandemic forces governments to boost employment Various institutional initiatives, including the and economic activity with priority policy measures and issuance of green obligations and the establishment sheer disbursements of public funds. Three decisive of sustainable finance taxonomies based on constituants will forge climate action for the years to objective, transparent and science-based criteria, come and need to be aligned unequivocally: the energy are designed to steer investments towards low component of public recovery packages with a strong carbon options more systematically. A priority is to green focus; the ambition levels for the critical 2030 and be given to the modernization of existing infrastructure, 2050 milestones, i.e. countries’ enhanced Nationnally including power networks and existing nuclear assets. Determined Contributions and firm and cost-effective The simplification of government bureaucracy, a Net Zero Emission plans. strong will to reform the electricity sector and address utilities’ chronic lack of creditworthiness, will enhance The energy transtion cannot be effective without the rollout of clean infrastructure developments, clear policy signals on the use of unabated fossil particularly in emerging economies. Three is also a fuels. Carbon charges and the phase-out of fossil growing recognition that funding innovation will be key fuel support are economically-sound policy drivers to a successful transition. In a period of historically to discriminate among energy sources, and should low capital costs, many governments also see an be integral part of any comprehensive and effective opportunity to support nascent industries with far- climate strategy. The environmental impact of the reaching decarbonization potential such as green transition must also be regulated and more sustainable hydrogen. supply chains of the raw commodities required for the transition must be promoted. Social and inequality concerns inherent to the transition must be tackled to ensure successful and Large coalitions of business leaders step in to just outcomes. A large public buy-in must be pursued accelerate the transition, encouraged by the civil by decision-makers and mechanisms be put in place to society’s raising awareness our vulnerability to address conventional industries as well as vulnerable future climate risks. More and more corporations and people and small businesses whose activities and financial institutions opt of transparency by disclosing revenues are at threat. The coal industry and its labor their climate vulnerabilities through comprehensive and force are directly exposed by market competition and science-based environmental, social, and governance programmatic shifts to low carbon energy sources. propositions, and bank on sustainable strategies for their Adequate support, in the form of e.g. compensations procurement and supply chains. However, inconsistent and requalification opportunities for workers, may policy incentives and regulatory frameworks can hinder be needed to support the decommissioning of the businesses action. most inefficicent and polluting assets, and ensure an acceptable transition for all.

26 References

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29 Notes

1. Low carbon and clean electricity may be used interchangeably in this document. Unless otherwise specified, low carbon and clean electricity referred to in the text include renewable and nuclear energy. Low carbon electricity may also refer to other potential sources of low carbon electricity, such as fossil fuels equipped with carbon capture, storage and utilization devices as well as clean hydrogen, i.e. hydrogen produced from aforementioned low carbon energy sources. The market shares of carbon capture, storage and utilization and clean hydrogen technologies are not yet significant enough to influence current patterns on the energy transition. 2. The World Economic Forum’s Transition Readiness index benchmarks countries against their energy system structures, the capital and investment landscape, regulations in place and political commitment, human capital and consumer participation, infrastructure and the degree of innovation in business environment, institutions and governance. ETI benchmarks are dynamic in nature and vary year on year. As shown in the right panel, the 2020 top performer was Sweden with an ETI score of 74% (100% being the maximum score). With a score of 50%, Tajikistan is the top performer among low income nations. Source: WEF (2020). 3. IEA Sustainable Development Scenario in line with the 2°C objective of the Paris Agreement. Source: IEA (2020a). 4. Sources: IEA (2020b), IEA (2020c). 5. Sources: IEA (2020b), IEA (2020c), World Bank (2020a). 6. Sources: IEA (2020b), World Bank (2020a). 7. IAEA (2020a), IAEA (2020b), World Bank (2020a). 8. The compound annual growth rate (CAGR) of per capita electricity consumption (or equivalently the electricity intensity of GDP) corresponds to the mean annual growth rate of per capita electricity consumption between e.g. 2010 and 2018. Negative values represent decreases in individual electricity consumption, while positive numbers indicate increases. In the case of China, per capita electricity consumption grew on average by 6.6% between 2010 and 2018 (compared to more than 12% during the prior decade). The electricity intensity of GDP is defined as the ratio between a country’s final electricity consumption and its GDP measured in purchasing power parity terms. Sources: IAEA (2020b), World Bank (2020a). One country per income group is highlighted for the sake of illustration. The World Bank’s country classification by income for the year 2018 is provided in the Annex. Sources: : IEA (2020b); IEA (2020c); World Bank (2020a). 9. This chart and the rest of the section content draw largely on the IAEA web story “COVID-19 and Low Carbon Electricity: Lessons for the Future” published on 9 July 2020. Sources: European Network of Transmission System Operators for Electricity (ENTSO-E) (Europe), Ukrenergo National Power Company (Ukraine), Power System Operation Corporation (India), Korea Power Exchange (South Korea), Operador Nacional do Sistema Elétrico (Brazil), Independent Electricity System Operator (Ontario, Canada), EIA (USA). 10. Source: See previous note. 11. Sources: ENTSO-E Transparency Platform: www.transparency.entsoe.eu.org 12. The US Department of Energy (DOE)’s Global Energy Storage Database houses over 1600 energy storage projects worldwide. Source: www.sandia.gov/ess-ssl/global-energy-storage-database-home/ 13. Sources : Renewable capacities: IRENA (2019); nuclear capacities: IAEA (2020b); Levelized costs of electricity: IEA (2020a); levelized costs of storage: Lazard (2019-2020). 14. Source: IEA (2020a). 15. Source: IEA (2020a). 16. Policies are classified as “fossil unconditional” if they support production and consumption of fossil fuels (oil, gas, coal, “grey” hydrogen or fossil fuel-based electricity) without any climate targets or additional pollution reduction requirements. Source: www.EnergyPolicyTracker.org/region/g20 17. Sources: IEA (2020a), IEA (2020g) and earlier editions (2016-2019). 18. Sources: World Bank (2020d): Population exposed to levels exceeding WHO guideline value - 1990-2017; WHO (2020), IEA (2020c). 19. Sources: Aon (2016-2020), Swiss Re (2017), USGCRP (2018), McKinsey (2019), Nicolas et al. (2019).

30 World Bank’s Country classification by income, 2018

Sources: IEA (2020b), World Bank (2020a). This analysis draws largely on data for a selection of 142 countries extracted from the IEA database on energy related CO2 emissions, covering more than 99% of global CO2 emissions from electricity and heat. Korea refers to the Republic of Korea. Country income groups are based on the 2018 World Bank classification: GNI per capita in low income countries was $995 or less in 2017; between $995 and $3,895 in lower-middle income countries; between $3,895 and $12,055 in higher-middle income countries; $12,055 or more in high income countries.

High Income Countries Upper Middle Countries Lower Middle Countries Low Income Countries

AUS Australia ALB Albania AGO Angola PRK Dem. People's Rep. of Korea AUT Austria DZA Algeria BGD Bangladesh COD Dem. Rep. of Congo BHR Bahrain ARG Argentina BOL Bolivia ERI Eritrea BEL Belgium ARM Armenia KHM Cambodia ETH Ethiopia BRN Brunei Darussalam AZE Azerbaijan CMR Cameroon HTI Haiti CAN Canada BLR Belarus COG Congo MOZ Mozambique CHL Chile BIH Bosnia and Herzegovina CIV Côte d'Ivoire NPL Nepal HRV Croatia BWA Botswana EGY E gypt NER Niger CUW Curaçao BRA Brazil SLV El Salvador SSD South Sudan CYP Cyprus BGR Bulgaria GHA Ghana SYR Syrian Arab Rep. CZE Czech Republic COL Colombia HND Honduras TJK Tajikistan DNK Denmark CRI Costa Rica IND India TZA Tanzania EST Estonia CUB Cuba IDN Indonesia TGO Togo FIN Finland DOM Dominican Rep. KEN Kenya YEM Yemen FRA France ECU Ecuador KGZ Kyrgyzstan DEU Germany MKD FYR of Macedonia MDA Moldova GIB Gibraltar GAB Gabon MNG Mongolia GRC Greece GEO Georgia MAR Morocco HKG Hong Kong, China GTM Guatemala MMR Myanmar HUN Hungary IRQ Iraq NIC Nicaragua ISL Iceland IRN Islamic Rep. of Iran NGA Nigeria IRL Ireland JAM Jamaica PAK Pakistan ISR Israel JOR Jordan PHL Philippines ITA Italy KAZ Kazakhstan SEN Senegal JPN Japan XKX Kosovo SDN Sudan KOR Korea LBN Lebanon TUN Tunisia KWT Kuwait LBY Libya UKR Ukraine LVA Latvia MYS Malaysia UZB Uzbekistan LTU Lithuania MUS Mauritius VNM Viet Nam LUX Luxembourg MEX Mexico ZMB Zambia MLT Malta MNE Montenegro ZWE Zimbabwe NLD Netherlands NAM Namibia NZL New Zealand PRY Paraguay NOR Norway CHN People's Rep. of China OMN Oman PER Peru PAN Panama ROU Romania POL Poland RUS Russian Federation PRT Portugal SRB Serbia QAT Qatar ZAF South Africa SAU Saudi Arabia LKA Sri Lanka SGP Singapore SUR Suriname SVK Slovak Republic THA Thailand SVN Slovenia TUR Turkey ESP Spain TKM Turkmenistan SWE Sweden VEN Venezuela CHE Switzerland TTO Trinidad and Tobago ARE United Arab Emirates GBR United Kingdom USA United States URY Uruguay

31 Acknowledgements

Author: Bertrand Magné

Tableau software visualizations: Harim Jung

The author is particularly grateful to the following colleagues for their peer review: Henri Paillere, Aliki Van Heek, Marco Cometto, Chowoo Jo, Anna-Katharina Kothe, Milko Kovachev, Pal Vincze, Ed Bradley, Akira Kawano, Aninda Dutta Ray, Marianne Fisher, Marta Gospodarczyk. The author is particularly grateful to Harsh Vijay Singh (World Economic Forum) for his support.

Email: [email protected] Tel: +43-1-2600-22776,Fax:+43-1-26007-22529 PO Box100,1400Vienna, Austria Vienna Centre International AtomicEnergyInternational Agency Department ofNuclearEnergy Planning andEconomicStudiesSection

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