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Rising electricity demand might result in additional market volatility and high emissions

Global electricity demand surged in 2021, creating strains in major markets, pushing prices to unprecedented levels and driving the power sector’s emissions to a record high. Rising demand over the next three years could result in additional market volatility and continued high emissions, according to the latest report published by the International Energy Agency (IEA).

Driven by the rapid economic rebound, last year’s 6 per cent rise in global electricity demand was the largest in percentage terms since 2010 when the world was recovering from the global financial crisis. The steep increase in demand outstripped the ability of sources of electricity supply to keep pace in some major markets, with shortages of natural gas and coal leading to volatile prices, demand destruction and negative effects on power generators, retailers and end-users.

“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,” said IEA Executive Director Fatih Birol. “Policymakers should be taking action now to soften the impacts on the most vulnerable and to address the underlying causes. Higher investment in low-carbon energy technologies including renewables, energy efficiency and nuclear power – alongside an expansion of robust and smart electricity grids – can help us get out of today’s difficulties.”

electricity demand
Source: IEA.

Electricity produced from renewable sources grew by 6 per cent in 2021, but it was not enough to keep up with galloping demand. Coal-fired generation grew by 9 per cent, serving more than half of the increase in demand and reaching a new all-time peak as high natural gas prices led to gas-to-coal switching. Gas-fired generation grew by 2 per cent, while nuclear increased by 3.5 per cent, almost reaching its 2019 levels. In total, carbon dioxide (CO2) emissions from power generation rose by 7 per cent, also reaching a record high, after having declined the two previous years.

“Emissions from electricity need to decline by 55 per cent by 2030 to meet our Net Zero Emissions by 2050 Scenario, but in the absence of major policy action from governments, those emissions are set to remain around the same level for the next three years,” said Dr Birol. “Not only does this highlight how far off track we currently are from a pathway to net zero emissions by 2050, but it also underscores the massive changes needed for the electricity sector to fulfil its critical role in decarbonising the broader energy system.”

In Europe, after the demand for electricity fell by 1.3 per cent in 2019 and 4 per cent in 2020, it increased by more than 4 per cent in 2021 to about the prepandemic level of 2019. Two factors were the main drivers for the strong rebound. First, the region’s economy grew strongly; second, colder temperatures raised heating demand.

The most notable development on the European supply side in 2021 was the strong growth of coal-fired generation, increasing by more than 11 per cent after a 20 per cent decline in 2020. Coal served 40 per cent of the year’s incremental demand, followed by nuclear at 30 per cent (growing by 6 per cent). The main reasons for this rebound of coal are the strong growth in demand coupled with relatively low growth in renewables generation (up 1 per cent, caused by exceptionally low wind speeds).

In contrast with the rest of Europe, Turkey’s electricity consumption did not decline in 2020, increasing slightly compared with the previous year. The IEA estimates that electricity demand surged by over 8 per cent in 2021, largely driven by higher economic activity. The strong demand growth in 2021 coincided with a steep decline in hydro generation (down by almost 30 per cent) amid a severe drought. This in turn provided additional market space for thermal generation, most of which has been captured by gas-fired power plants.

Turkey’s electricity demand is expected to grow by an average rate of close to 4 per cent per year from 2022 to 2024, more than any other major economy in Europe. Renewables generation is foreseen to increase by 13 per cent per year on average, largely driven by improving hydro availability. The first unit at Akkuyu, the country’s first nuclear power plant, is expected to start up in 2023/24 with a capacity of 1.2 gigawatts (GW).

Globally, for 2022-2024, the report anticipates electricity demand growing 2.7 per cent a year on average, although the COVID-19 pandemic and high energy prices bring some uncertainty to this outlook. Renewables are set to grow by 8 per cent per year on average, serving more than 90 per cent of net demand growth during this period. The IEA expects nuclear-based generation to grow by 1 per cent annually during the same period.

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