Transforming the Energy System

TRANSFORMING THE ENERGY SYSTEM

– AND HOLDING THE LINE ON RISING GLOBAL TEMPERATURES

n n KEY FINDINGS AND NUMBERS USD 95 trillion CURRENT PLANS USD 110 trillion +15 ENERGY TRANSFORMATION trillion USD more needed

Fossil fuels - supply Electriﬁcation Fossil fuels - power Power grids and energy ﬂexibility Nuclear Biofuels Energy e ciency Hydrogen Renewables - power Others Renewables - end-uses

Fossil fuels - supply Fossil fuels - power Nuclear Energy e ciency Renewables – power +15 Renewables – end-uses 95 USD trillion 110 USD trillion more needed KEY NUMBERS USD trillion Electriﬁcation Power grids and energy ﬂexibility Biofuels

USD 95 trillion investmentsCURRENT PLANS in USD Hydrogen USD 110 trillion +15 trillion ENERGY TRANSFORMATION trillion USD +15 the sector bymore needed compared to

Fossil fuels - supply Others Electriﬁcation 2050Fossil fuels - topower achievePower grids and energy ﬂexibility Nuclear Biofuels Energy e ciency Hydrogen Renewables - power 110 Others CURRENT PLANS USD trillion ENERGYRenewables - end-uses TRANSFORMATION

Fossil fuels - supply Fossil fuels - power Nuclear Energy e ciency Renewables – power 95 110 Renewables – end-uses USD trillion USD trillion Electriﬁcation Power grids and energy ﬂexibility Biofuels Hydrogen Others Increased investment and changing energy mix Investment in Energy Efficiency: USD 37 trillion vs. USD 29 trillion Investment in Renewable USD Energy: 27 trillion vs. USD 12 trillion

Power Changing trade, End uses Biofuels spending and investment patterns

USD USD USD higher 22.5 trillion 2.5 trillion 2 trillion GDP vs. USD 12 trillion vs. USD 1 trillion vs. USD 1 trillion 2.5%

more jobs* 7million * Estimated 0.15% higher economy-wide net employment in 2050 with ENERGY TRANSFORMATION compared to CURRENT PLANS KEY FINDINGS

he Paris Agreement sets a goal of “[h]olding the Around the world today, national energy plans and T increase in the global average temperature to well Nationally Determined Contributions (NDCs) fall far below 2°C above pre-industrial levels and pursuing short of the emissions reductions needed. Currently, efforts to limit the temperature increase to 1.5°C the world may exhaust its “carbon budget” for energy- above pre-industrial levels” to significantly reduce related emissions until the end of the century in as the risks and impacts of climate change. The world few as ten years. To hold the line at 1.5°C, cumulative today has less than two decades to make serious energy-related carbon-dioxide (CO2) emissions must cuts in carbon emissions. If we fail, according to the be 400 gigatons (Gt) lower by 2050 than current Intergovernmental Panel on Climate Change (IPCC, policies and plans indicate. 2018), we may cross the tipping point into a future of The International Renewable Energy Agency (IRENA) 1 catastrophic climate change. has explored two broad future paths: Current Plans Ambitious investments in the energy sector – (meaning the course set by current and planned reshaping power generation, transport and other policies); and the path for a clean, climate-resilient energy uses on both the supply and demand sides Energy Transformation.2 Building such a low-carbon, – can provide many of the quick wins needed for climate-safe future can deliver a broad array of socio- a sustainable future. Renewable energy sources, economic benefits, IRENA’s analysis shows. But to coupled with steadily improving energy efficiency, make this happen, the pace and depth of investments offer the most practical and readily available solution in renewables must be accelerated without delay. within the timeframe set by the IPCC. By embarking Renewable energy technologies alone are not upon a comprehensive energy transformation today, enough to achieve massive decarbonisation. The we can start to create a better energy system – one future energy system encompasses three inter- capable of ensuring that average global temperatures related elements: one, renewable energy, would rely at the end of the century are no more than 1.5°C above on steady improvements to energy efficiency and pre-industrial levels. increased electrification of end-use sectors. The cost equation also matters, with affordable renewable power allowing faster, more viable displacement of conventional coal- and oil-burning systems.

Renewables and energy efficiency, enhanced through electrification, can achieve over nine-tenths of the cuts

needed in energy-related CO2 emissions

1 Paris Agreement, Art. 2(1)(a). 2 Global Energy Transformation: A Roadmap to 2050 (IRENA, 2019) analyses and compares these two investment and development pathways as far as mid-century.

3 Annual energy-related CO2 emissions and reductions, 2010–2050

Gt/yr

35 CURRENT PLANS 33 Gt in 2050 Buildings Electriﬁcation 30 of heat and Buildings transport w/RE: Renewable Transport 36% energy and 25 electriﬁcation District heat Transport 70% emission deliver 75% Renewable of emission reductions energy: 20 resulting reductions Power 39% District heat from the Energy 15 Transformation Energy Industry e ciency Power and others: 25% 10 ENERGY TRANSFORMATION 9.8 Gt in 2050 5 Industry

0 2010 2015 2020 2025 2030 2035 2040 2045 2050

Based on Global Energy Transformation: A Roadmap to 2050 (IRENA, 2019). Note: “Renewables” in the caption denotes deployment of renewable technologies in the power sector (wind, solar photovoltaic, etc.) and in direct end-use applications (solar thermal, geothermal, biomass). “Energy efficiency” denotes efficiency measures in industry, buildings and transport (e.g. improving insulation of buildings or installing more efficient appliances and equipment). “Electrification” denotes electrification of heat and transport applications, such as heat pumps and electric vehicles. Gt = gigaton; RE = renewable energy.

Practical options for global energy decarbonisation IRENA has explored global energy development options Assessing the additional potential for scaling up or from two main perspectives: the course set by current optimising low-carbon technologies and approaches, and planned policies; and a cleaner, climate-resilient including renewable energy, energy efficiency and pathway based on more ambitious uptake of renewables electrification, while also considering the role of other and associated technologies. Throughout this report the technologies; first, or Current Plans, provides a comparative baseline Developing a realistic, practical Energy Transformation for a more ambitious Energy Transformation. scenario, referred to in other publications as the REmap Global Energy Transformation: A Roadmap to 2050 Case. This calls for considerably faster deployment (IRENA, 2019) analyses and compares these two of low-carbon technologies, based largely on investment and development pathways as far as mid- renewable energy and energy efficiency, resulting in a century. transformation in energy use to keep the rise in global The ongoing roadmap analysis, updated annually, temperatures this century as low as 1.5°C compared to involves several key steps: pre-industrial levels. The scenario focuses primarily on cutting energy-related carbon-dioxide (CO ) emissions, Identifying the Current Plans for global energy 2 which make up around two-thirds of global greenhouse development as a baseline scenario (or Reference Case) gas emissions; for comparing investment options worldwide as far as 2050. This presents a scenario based on governments’ Analysis of the cost, benefits and investment needs current energy plans and other planned targets and for low-carbon technologies worldwide to achieve the policies, including climate commitments made since envisaged energy transformation. 2015 in Nationally Determined Contributions under the For more on the global roadmap and its underlying Paris Agreement; analysis, see www.irena.org/remap.

4 Moreover, falling renewable power costs provide Renewables and associated infrastructure account for a crucial synergy with electric mobility and heat. nearly half of the difference, with energy efficiency Renewables-based heat and transport solutions alone and electrified transport and heat applications could provide two-thirds of the energy emissions cuts absorbing the rest: needed to meet agreed international climate goals. Investment to build up renewable power generation Modern, increasingly “smart” grid infrastructure capacity needs to be twice as high as currently allows unprecedented flexibility in energy production, foreseen, reaching USD 22.5 trillion by 2050. distribution and use. But investments are needed to Energy efficiency requires investments of USD 1.1 trillion make the most of these gains. per year, more than four times their present level. With solar and wind power on the rise, grid Investment patterns must change operators need new equipment to make the whole power system operate flexibly. Some of the solutions Despite the climate urgency, present investment are market-based, others require investment in patterns show a stark mismatch with the pathway to modern technology solutions. Quick-ramping hold the 1.5°C line. Investments in low-carbon energy thermal generation backups, pumped hydropower, solutions have stalled over the past three years. reinforced transmission and distribution grids, Government plans in place today call for investing digital control equipment, vastly expanded storage at least USD 95 trillion in energy systems over the capacity, and demand-side management through coming three decades. But those plans and related heat pumps, electric boilers and behind-the-meter investments are not always channelled toward climate- batteries are just some of the areas for power system proof systems. The investments must be redirected. investment. The transformed energy system would include more To ensure a climate-safe future, they need to flow than a billion electric vehicles worldwide by 2050. into an energy system that prioritises renewables, Combined investments in charging infrastructure efficiency and associated energy infrastructure. With and the electrification of railways could reach a different energy investment mix and only USD 15 USD 298 billion yearly. trillion added to the total investment amount, the Industry and buildings could incorporate more than global energy system could be largely climate-proof, 300 million highly efficient heat pumps, more than with cost-effective renewable energy technologies ten times the number in operation today. This means underpinned by efficient use. investments of USD 76 billion each year. USD 3.2 trillion – representing about 2% of gross To deepen the system’s synergies even more, domestic product (GDP) worldwide – would have nearly 19 exajoules of global energy demand could to be invested each year to achieve the low-carbon be met by renewable hydrogen – that is, hydrogen energy transformation. This is about USD 0.5 trillion produced from renewable sources. But that means more than under current plans. While cumulative adding nearly 1 terawatt of electrolyser capacity by global energy investments by 2050 would then be 16% 2050 at an average investment cost of USD 16 billion higher, their overall composition would shift decisively per year worldwide. away from fossil fuels. Investments in renewable heating, fuels and direct uses, which totalled around USD 25 billion last year (IEA, 2019), must nearly triple to USD 73 billion per Transforming the energy year over the coming three decades. East Asia would account for the highest annual system means doubling investments in the energy transformation until 2050, planned investments in at USD 763 billion, followed by North America at renewable power generation USD 487 billion. Sub-Saharan Africa and Oceania over the next three decades would see the lowest, at some USD 105 billion and USD 34 billion per year, respectively.

5 Needs and opportunities

REDUCED FALLING CARBON EMISSIONS ENERGY COSTS 70% lower Renewables fully competitive

REDUCED IMPACT, GREATER ECONOMIC GAIN ENERGY JOB CREATION

USD 3-7 payo TRANSFORMATION 7 million for each by 2050 more jobs USD 1 spent economy-wide

IMPROVED FULL ENERGY ENERGY SECURITY ACCESS

-64% demand 100% energy of fossil fuels access

IRENA analysis.

To stay below the IPCC’s recommended 1.5°C limit, By shifting investments, the world can achieve greater the world must shift nearly USD 18.6 trillion of its gains. Fortunately, transforming the energy system cumulative energy investments until 2050 from fossil turns out to be less expensive than not doing so. This is fuels to low-carbon technologies. Average annual true even without factoring in the payoffs of mitigating fossil-fuel investments over the period would then fall climate change and achieving long-term sustainability. to USD 547 billion – about half of what the fossil fuel Through 2050, the amounts saved by reducing net industry invested in 2017. energy subsidies and curtailing environmental health damage would exceed investments by three to seven times. Investments in the energy transformation could create Every dollar spent can bring about 98 trillion in additional GDP gains by 2050 returns as high as seven compared to current plans, IRENA’s analysis shows. dollars in fuel savings, avoided Jobs in the energy sector would increase by 14% investments and reduced health with the transformation. New jobs would outweigh job losses, even with the decline in jobs linked to and environmental damage fossil fuels. Renewable energy jobs would grow an estimated 64% across all technologies by 2050.

6 The policy framework for a just transition

System ﬂexibility

Behavioral policies Integrating policies Sector coupling

R&D

Deployment Push policies

Financial policies

Pull

Enabling Industrial policies policies

Labour market and social protection policies

Fiscal and ﬁnancial Education and skills policies

Based on IRENA, IEA and REN21 (2018). Note: R&D = research and development.

While such indicators are highly encouraging, energy investment can no longer be pursued in isolation from its broader socio-economic context. As countries A transformed energy turn increasingly to renewables, they will need a system would help to fulfil comprehensive policy framework for the ensuing transformation. Plans and investment strategies must the Sustainable Development be accompanied by a clear, integrated assessment Goals and stimulate benefits of how the energy system interacts with the broader across multiple sectors economy for a just and timely transition.

Countries seeking to stimulate economic growth can simultaneously optimise the effects of renewables efficiency and achieve extraordinary synergies and minimise the cost of economic and employment through electrification. The transformed energy adjustments. Far-sighted energy investment policies, system by 2050 should be able to meet the world’s when harnessed to savvy socio-economic policies, needs for the second half of the century. can help to ensure a just transformation that leaves If socio-economic needs and aspirations are fulfilled no one behind. in parallel, such changes are likely to gain acceptance Through informed investments starting today, and endure even beyond today’s urgent shifts to countries and communities can scale up renewables mitigate climate change. Only then will the global cost-effectively, make steady gains in energy energy transformation be truly sustainable.

7 Investment needs through 2050 by technology: Current Plans n vs. Energy Transformation n

Category Cumulative investments Difference Comments between 2016 and 2050

Renewables-basedUSD trillion USD trillion • Chiefly, construction of power generation25 25 22.5 22.5 generation25 capacity25 fuelled capacity by wind and solar PV 20 20 + 10.8 + 10.820 20 (excl. electrification) USD trillion USD trillion 15 11.715 11.7 15 15

10 10 10 10

5 5 5 5

0 0 0 0 Current Plans CurrentEnergy Plans TransformationEnergy Transformation

Power grids andUSD trillion USD trillion • 80% for extension and flexibility 14 14 12.7 12.7 reinforcement15 15 of transmission 12 12 and distribution networks +3.3 +3.312 12 10 9.410 9.4 USD trillion USD• Balance trillion for smart meters, 8 8 energy9 storage9 (pumped 6 6 hydro, battery storage), and retrofitted6 or new6 generation 4 4 capacity to ensure adequate 3 3 2 2 reserve capacity 0 0 0 0 Current Plans CurrentEnergy Plans TransformationEnergy Transformation

Energy efficiencyUSD trillion in USD trillion • 50% for building renovations end-use sectors40 40 37.4 37.4 and40 construction40 of new (excluding + 8.5 + 8.5efficient35 buildings35 electrification)30 28.930 28.9 USD trillion USD trillion30 30 • Balance for improvements in 25 25 transport and industry 20 20 20 20 15 15 10 10 10 10 5 5 0 0 0 0 Current Plans CurrentEnergy Plans TransformationEnergy Transformation

ElectrificationUSD trillion USD trillion • 80% for charging infrastructure of end-use 14 14 13.24 13.24 for15 electric vehicles15 and sectors 12 12 electrification of railways + 9.95 + 9.9512 12 10 10 USD trillion USD• Balance trillion for heat pumps in 8 8 buildings9 (12%)9 and industry 6 6 (8%) 6 6 4 3.294 3.29 • Fraction of 1% for 1 TW 2 2 of electrolyser3 capacity3 to produce 19 exajoules of 0 0 0 0 Current Plans CurrentEnergy Plans TransformationEnergy Transformation hydrogen

Note: EJ = exajoule; PEM = polymer electrolyte membrane; PV = photovoltaic; TW = terawatt.

8 Category Cumulative investments Difference Comments between 2016 and 2050

Direct applicationsUSD trillion USD trillion • 42% for biofuel production of renewables 5 5 4.5 4.5 to decarbonise5 5the transport sector, especially aviation and 4 4 +3.23 +3.23shipping4 4 USD trillion USD trillion 3 3 • 40%3 for solar thermal3 deployments in industry 2 2 1.27 1.27 (primarily)2 and 2buildings 1 1 • 11% 1for modern 1biomass; balance for geothermal 0 0 0 0 Current Plans CurrentEnergy Plans TransformationEnergy Transformation deployment

Other USD trillion USD trillion • Includes carbon capture 0.5 0.5 and0,40 storage in0,40 industry and 0.4 0.4 efficiency0,35 improvements0,35 in 0.4 0.4 +0.4 +0.4materials0,30 0,30 0.3 0.3 USD trillion USD trillion0,25 0,25 0,20 0,20 0.2 0.2 0,15 0,15 0.1 0.1 0,10 0,10 0 0 0,05 0,05 0.0 0.0 0,00 0,00 Current Plans CurrentEnergy Plans TransformationEnergy Transformation

Non-renewablesUSD trillion USD trillion • More than 90% of change due to lower spending on 45 39.945 39.9 40 40 40 40 fossil35 fuels (upstream35 supply, 35 35 generation capacity) 30 30 30 30 –20.1 –20.1 25 25 25 25 USD trillion USD• Balance trillion reflects avoided 20 20 18.3 18.3 investments20 in20 nuclear power 15 15 generation15 capacity15 10 10 10 10 5 5 5 5 0 0 0 0 Current Plans CurrentEnergy Plans TransformationEnergy Transformation

Total differenceUSD trillion USD trillion 120 120 110 110 120 120 95 95 Overall 100 100 +15 +15100 100 USD trillion USD trillion incremental 80 80 80 80 investment 60 60 60 60 needs are 40 40 40 40 USD 15 trillion. 20 20 20 20

0 0 0 0 Current Plans CurrentEnergy Plans TransformationEnergy Transformation

IRENA analysis.

9 Key indicators for two scenarios: Current Plans n vs. Energy Transformation n

Share of electricity in ﬁnal energy consumption

CURRENT PLANS 20% 24% 29% 27% 38% 30% 49% ENERGY TRANSFORMATION

2018 2030 2040 2050

Renewable energy share in power generation 25% 38% 57% 47% 75% 55% 86%

2018 2030 2040 2050

Renewable energy share in end-use sectors Variable renewable energy capacity

GW GW 8 000 8 000 11% 17% 28% Wind capacity Solar capacity

6 000 6 000 2017/18 2030 4 000 4 000

2 000 2 000 21% 46% 25% 66%

0 0 2018 2030 2040 2050 2018 2030 2040 2050 2040 2050

Electriﬁed transport Electriﬁed heating and cooling Biofuels for transport Numbers of EVs Numbers of heat pumps Liquid biofuels for transport 2018 2018 2018

2030 2030 2030

2040 2040 2040

2050 2050 2050

0 400 800 1 200 0 100 200 300 400 0 200 400 600 800 Million Million Billion litres

Energy eciency Total fossil-fuel demand reduction relative to today

GJ Total ﬁnal energy t CO2 per cap consumption per capita per cap Emissions per capita 60 5 20% 41% 64% 4 40 3 9% 9% 6% 2 20 1 0 0 2030 2040 2050 2018 2030 2040 2050 2018 2030 2040 2050

IRENA analysis. Note: Total wind capacity includes both onshore and offshore wind; total solar photovoltaic capacity includes both utility and small scale. EVs = electric vehicles; GJ = gigajoule; GW = gigawatt.

10 “The market has given the signal with cost competitive technologies. Policy makers must now put the enabling frameworks in place to accelerate climate-proof investments. We must create a low-carbon energy system to hold the line on rising global temperatures. It’s possible.“

Francesco La Camera Director-General International Renewable Energy Agency

About IRENA The International Renewable Energy Agency (IRENA) is an intergovernmental organisation that serves as the principal platform for co-operation, a centre of excellence, a repository of policy, technology, resource and financial knowledge, and a driver of action on the ground to advance the transformation of the global energy system. IRENA promotes the widespread adoption and sustainable use of all forms of renewable energy, including bioenergy, geothermal, hydropower, ocean, solar and wind energy, in the pursuit of sustainable development, energy access, energy security and low-carbon economic growth and prosperity.

This document summarises IRENA (2019), Transforming the energy system – and holding the line on the rise of global temperatures, International Renewable Energy Agency, Abu Dhabi (ISBN 978-92-9260-149-2).

Report and summary available for download: www.irena.org/publications For further information or to provide feedback: [email protected]

Disclaimer The designations employed and the presentation of materials featured herein are provided on an “as is” basis, for informational purposes only, without any conditions, warranties or undertakings, either express or implied, from IRENA, its officials and agents, including but not limited to warranties of accuracy, completeness and fitness for a particular purpose or use of such content. The information contained herein does not necessarily represent the views of all Members of IRENA, nor is it an endorsement of any project, product or service provider. The designations employed and the presentation of material herein do not imply the expression of any opinion on the part of IRENA concerning the legal status of any region, country, territory, city or area or of its authorities, or concerning the delimitation of frontiers or boundaries.

11 TRANSFORMING THE ENERGY SYSTEM

KEY FINDINGS AND NUMBERS