IEA: Electricity markets – surging demand, strained supply chains, renewables lagging

Strong economic growth combined with more extreme weather conditions boosted global electricity demand by more than 6% in 2021, according to the IEA.

In its latest Electricity Market Report released today, the IEA says that this growth in demand, corresponding to over 1,500TWh is the largest seen since the 2010 financial crisis. It has strained the supply chains for electricity and gas and pushed up prices to unprecedented levels as well as drove the sector’s emissions to a record high.

And without faster structural changes in the sector, such volatility and high emissions could continue in the years ahead.

According to the report, around half of the global growth took place in China, where demand increased by an estimated 10%, and more than half of it was met by coal-fired generation, which grew by 9% again principally in China as well as India.

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This increase in coal generation also was the main driver of the increase in CO2 emissions, which amounted to almost 7% in 2021.

Of the other energies, renewables grew by 6%, while nuclear grew by 3.5% and gas-fired generation by 2%.

Commenting on the findings, IEA Executive Director Fatih Birol said that higher investment in low carbon energy technologies including renewables, energy efficiency and nuclear power, alongside the expansion of smart electricity grids, can help to get out of today’s difficulties.

“Sharp spikes in electricity prices in recent times have been causing hardship for many households and businesses around the world and risk becoming a driver of social and political tensions. Policymakers should be taking action now to soften the impacts on the most vulnerable and to address the underlying causes.”

Some other notable findings in the semi-annually compiled report are that the decarbonisation of the electricity sector has become a central component of current climate policies and that commitments to end the use of coal are growing in number.

2021 also saw the introduction of new carbon pricing mechanisms. By the end of the year, there were 65 carbon pricing instruments in place, of which six new ones, all covering the electricity sector, were introduced during the year, the report notes.

Looking ahead to 2022-2024, the IEA anticipates electricity demand growing 2.7% a year on average, although with some uncertainty to this outlook from the present-day uncertainties resulting largely from the government interventions on Covid-19.

Renewables are set to grow by 8% per year on average, serving more than 90% of net demand growth during this period, while nuclear-based generation is expected to grow by 1% annually.

As a consequence, fossil fuel-based generation is expected to stagnate in the coming years, with coal-fired generation falling slightly as phase-outs and declining competitiveness in the US and Europe are balanced by growth in markets like China and India. Gas-fired generation is seen growing by around 1% a year.