DNV GL launched its first Energy Transition Outlook 2017 in early September. The publication, which is intended to be an annual release, presents an independent forecast of the world’s energy system and implications for the associated industries through to 2050.
In a world where many energy forecasts and scenarios already exist, DNV GL believes there is room for another one. The intention, from the outset, has been to give an unbiased and balanced view of what the energy future will look like. As such, the study is not presenting alternative scenarios, but one base or central case for the energy transition termed as a ‘most likely future’ for energy. As forecasts about the future involve a range of uncertainties, the report also contains sensitivity discussions.
A focus on energy transition(s)
The outlook is an energy transition outlook. The energy system is in the throes of a transition, with ongoing parallel transitions, such as decarbonization and electrification. The outlook builds on an understanding of technology and learning curve dynamics – the latter where the cost of a technology decreases by a constant fraction with every doubling of accumulated installed capacity, owing to the growth in experience, expertise and industrial efficiencies associated with market deployment and ongoing R&D. Interacting cost and technology dynamics are increasingly enabling low-carbon solutions to stand on their own feet. Other forces at play are diverse political frameworks and policy measures to achieve climate or other policy goals, such as the Sustainable Development Goals, that interact with technology development and economics.
Modelling the energy transition
DNV GL developed a model of the world’s energy system, depicting interconnected demand and supply of energy, within ten regions, and the transport of energy between those regions. The core of this is a system dynamics feedback model, implemented in Stella software. The model incorporates the entire energy system — from source to end-use — and simulates how its components interact. It includes all the main consumers of energy (including buildings, industry and transportation) and all the sources supplying the energy. While we model both energy demand and supply as mostly endogenously driven, the main exogenous drivers of energy demand in our model are population and productivity.
By design, the level of detail throughout the model is not uniform. Sectors where DNV GL has strong expertise and large business exposure, like oil & gas and power, are reflected in more detail than the sectors where we have little exposure, like coal. However, sectors critical to the energy transition, such as road transport, are treated more thoroughly than more marginal sectors. The model has no explicit energy market with separate demand and supply determining prices; the chosen approach concentrates on energy costs, with the assumption that, in the long run, prices will follow production costs. At the core of the model is a merit-order algorithm, based on forecasted decreasing production costs in its energy sectors, that prefers one energy source and/or production technology over another through time.
The work has been undertaken by DNV GL, and supported by external experts; including CICEP researchers who provided insights on the role of energy policy.
Findings from the Energy Transition Outlook 2017
A summary of highlights based on DNV GL’s forecasted energy future are:
- The world will experience a very rapid energy transition, driven by electrification, boosted by a strong growth of wind and solar power generation, and further decarbonization of the energy system
- Global energy demand will plateau after 2030, mainly owing to efficiencies in the generation and use of energy — even as the world makes steady progress with Sustainable Development Goal (SDG) #7
- Primary energy supply will peak in 2025, as electricity grows its share of the energy mix and losses are reduced through the accelerated uptake of efficient renewable sources
- Coal use has already peaked, oil will peak within the next 10 years and gas in 20 years, but gas remains the biggest single source of energy for the world through to 2050
- Renewable energy – notably wind and solar PV – will see exponential growth continue; making up close to half of the world’s energy supply in 2050, and dominate power production
- Electric vehicle take-up will be rapid and extensive — by 2033 half of new passenger cars sold globally will be zero emission
- The world will manage the shift to a renewable future without increasing energy expenditures; the future energy system will require a smaller share of Gross World Product than today
- Total energy-related CO2 emissions in 2050 will be around half of today’s level
Figure 1 illustrates how the forecasted energy supply and energy related CO2 emissions decouple from GDP and population growth on a global basis, with 2050 GDP to grow with 130% from 2015 levels, population to grow with 25%, energy supply to slowly decline from mid 2020s, and energy related CO2 emissions to stay flat for another ten years, thereafter to decline towards around half of today’s level.
In addition to a global outlook, the study also includes further regional energy transitions, including inter-regional energy relationships; with the world divided into 10 regions. Although the main characteristics of decarbonization and electrification holds for all regions, the energy transition will be experienced unevenly across the world. Regional energy transitions look very different from one another: e.g. India joining China as a renewable ’superpower’; fossil-fuel dominant regions like the Middle East and Russia experiencing relatively slow transition.
Although the Energy Transition Outlook is not a climate outlook, the study also considers the consequences of the forecasted energy future for emissions and temperature increase. To make a qualified estimate, we also consulted our CICERO partner. Although the outlook is among the select few forecasts that predict global energy demand to plateau by 2030, the emissions associated with the forecast will not bring the planet within the 2°C target.
With the forecasted emissions, we exhaust the 1.5°C carbon budget in 2021 and the 2°C carbon budget in 2041. This produces an overshoot, beyond the 2°C carbon budget of some 700 Gt CO2, pointing towards 2.5 °C global warming by the end of the century. In here there are obvious large uncertainties, in particular for future agriculture, forestry and other land use (AFOLU) emissions, the earth’s climate sensitivity, potential climate tipping points and other non-linear earth system reactions.
Finally, the outlook provides suggestions on how a step change in global efforts can close the gap, and the report include a discussion on the challenging but critical steps industry could take. The energy industries that we know have taken bold steps in the past; yet even bigger strides are required into the future, and we hope the 2017 outlook makes for stimulating reading and provides food for thought — and action.