Electricity Landscape: Expanding Demand

On January 16, 2018, I attended the US launch of the International Energy Agency (IEA)’s World Energy Outlook (WEO) 2017 at the Center for Strategic and International Studies. Dr. Fatih Birol, Executive Director of the IEA, presented findings from the WEO and highlighted four megatrends in the global energy system:

• Rapid deployment and falling costs of clean energy technologies
• Growth in electrification of energy
• China’s shift to a more services-based economy and a clean energy mix
• The US’s position as the biggest oil & gas producer globally

Taking these megatrends into account, as well as projections on where existing policies and announced intentions may lead the energy systems, WEO’s New Policies Scenario expects global energy needs to increase by 30% between 2018 and 2040. This growth is mainly driven by India, whose share of global energy use is expected to rise to 11% by 2040. Southeast Asia also contributes immensely to overall growing demand. Developing countries in Asia Pacific are expected to account for two-thirds of global energy growth.

Growing Demand for Electricity

With a rising standard of living in many developing countries, more people will want to buy appliances and electronic devices powered by electricity. Innovative transportation technologies are gaining momentum and are projected to increase electricity demand as well. For example, China will need to add the equivalent of today’s US power system to its infrastructure by 2040 to meet rising electricity demand; India needs to add a power system the size of the current European Union. In fact, global investment in electricity overtook that of oil & gas for the first time in 2016. Dr. Birol emphasized the importance of China and India’s future energy decisions. Their decisions will play a huge role in determining global trends due to the scale of investment and deployment.

WEO Electricity Demand Projections to 2040

(Source: International Energy Agency)

Heating and Cooling Demand Ramping Up

The growing demand for heating and cooling is among various drivers for electrification of energy. In particular, consumers in warmer regions will increasingly install cooling systems. There is great potential for energy savings with energy efficient HVAC products, but that market remains largely untapped at present. According to the recent Guidehouse Insights report, Market Data: Energy Efficient Buildings - Asia Pacific, the energy efficient HVAC market in Asia Pacific is expected to reach $25.6 billion in 2026. Specifically, China’s market is expected to grow at a 10.5% CAGR between 2017 and 2026; and 11.4% in India. Today, heating and cooling in buildings account for approximately 40% of energy consumption.

In addition to demand for heating and cooling, the EV market is expected to grow rapidly. EVs can lead to a major low-carbon pathway for the transportation sector. Notably, Europe and China are aggressively promoting EV deployments. Guidehouse Insights projects global plug-in EV sales to reach 8.3 million by 2026.

Increasing Electricity Demands

Overall, end-use electrification is expanding. The IEA expects the share of electricity in final energy demand to increase from 18% today to 26% in by 2060. So, what does the growing electrification of energy mean? Electrification creates environmental benefits by shifting many end uses of electricity away from fossil fuel sources. It also creates opportunities for boosting energy efficiency.

While there are still many challenges to overcome, such as enforcing energy efficiency regulations and developing EV infrastructure, the electrification of large sectors of the economy holds great growth potential. This growth will be driven by rapidly evolving technologies, emerging innovative business models, and shifting regulatory environment. Together, these are referred to as the Energy Cloud, disrupting the traditional electricity landscape. To learn more about how industry stakeholders can prepare and manage their organization to maneuver through the Energy Cloud disruption and position themselves for long-term success, see Guidehouse Insights’ white paper, Navigating the Energy Transformation.