Taking action to stay within 1.5ºC

The power sector is key to decarbonising energy

The power sector currently only accounts for around 20% of global energy use, whereas the remaining 80% can be attributed to non-electric heating, cooling, transportation, and various industrial processes.

However, all of these sectors hold a significant potential for electrification. Having ‘cracked the code’ for green power at scale, which is now cheaper in many countries than electricity based on fossil fuels, the power sector is expected to be instrumental in transforming the global energy system from fossil fuel-based energy to renewable energy, and driving down carbon emissions at the necessary speed.

To achieve a profound decarbonisation of the global energy system, the world will need significant and simultaneous action in three major areas:

1. Green electrification is needed to phase out fossil fuels
With solar and wind power now cost competitive, we must rapidly electrify the transportation, industry, and building sectors using green power to decarbonise the global energy system.

2. Accelerating the phase-out of fossil fuels, especially coal
To cut global carbon emissions, we need to phase out fossil fuels, most importantly coal, much faster than the current projected retirement rate.

3. Speeding up the build-out of green power
To replace fossil fuels in the global energy system and increase the share of green power, we must build out green power production capacity at a far quicker speed than today.

Green electrification is needed to phase out fossil fuels

Pursuing a roadmap for rapid decarbonisation aligned with the 1.5°C target is projected to increase electricity’s share of total energy consumption by a factor of 2.5 from 20% to around 50% in 2050Citation The 1.5°C compatible scenarios assessed by IPCC assume electrification rates varying from 34% to 71%. 50% is the share required in the “well-below 2°C” scenario from IRENA (2019) Global Energy Transformation – Roadmap for 2050., making electricity the dominant global energy carrier. 

Decarbonisation through electrification makes sense for two reasons. First, due to the rapidly decreasing cost of solar and wind power, there is a significant potential for cost-effective substitution of other types of energy with green power. In most parts of the world today, establishing new solar and wind power capacity is cheaper than building new coal and gas-fired power plants, with the price of wind and solar power capacity continuing to fallCitation IEA (2018) World Energy Outlook..

Second, decarbonisation of the global power sector is more advanced than in other energy-consuming sectors, with just over a quarter of the global electricity supply sourced from green power. This makes electrification a key driver to decarbonising transportation, buildings, and industry, primarily through direct electrification. While direct electrification can replace fossil fuels in many cases, it is not always applicable, and therefore indirect electrification – for example through power-to-X technologies Citation Power-to-X denotes conversion technologies that allow for the decoupling of power for use in other sectors, such as producing hydrogen and ammonia from electricity to use in transport and for chemicals. – will also be needed to help decarbonise areas such as heavy transport and some industrial processes.

Significant decarbonisation potential across sectors

The majority of the energy being used for transportation, industry, and buildings is derived from fossil fuels. The power sector will play a key role in decarbonising these sectors both directly and indirectly, but other solutions are also needed to reduce emissions.

Transportation has the lowest share of energy use from electricity, but electrification holds significant potential to replace oil as the main fuel for cars, trains, buses, and near-shore shipping. Bloomberg New Energy Finance estimates that the first electric vehicles will achieve price parity with conventional combustion engine vehicles from 2022Citation Bloomberg New Energy Finance (2019) Electric Vehicle Outlook 2019.. Synthetic fuels derived from green power and biofuels can help decarbonise some of the harder-to-abate modes of transportation such as aviation, long-range shipping and heavy-duty road transport.

Industry depends on fossil fuels for both fuel and feedstocks, and it will be challenging to fully decarbonise this sector. However, green on-site power production, electric boilers, furnaces and smelters, heat pumps, and power to gas from renewables are all electricity-based solutions that will help reduce emissions by replacing oil, gas and coal in industrial production processes. Furthermore, increased resource efficiency and new technologies can help reduce emissions in some of the harder-to-abate industries such as cement, steel, and plastic production.

Buildings will benefit greatly from switching to heat pumps for space heating and hot water as these are 3 to 4 times more efficient than conventional forms of space heating. Some harderto-abate areas in buildings could reduce emissions through waste reduction, more reuse, and increased material efficiency. Furthermore, there is a large untapped potential to reduce energy use in buildings by increasing energy efficiency through smart buildings, heat pumps, better insulation, and other solutions.

Accelerating the phase-out of fossil fuels, especially coal

The third lever that must be deployed to limit global warming to 1.5°C is to phase out fossil fuels, especially coal, from power production much faster than today. Coal is the dominant fossil fuel in the global power system, producing 37% of electricity worldwide. However, as the most carbon intensive fossil fuel, burning coal accounts for 72% of emissions from the power sectorCitation IEA (2018) World Energy Outlook. When adding natural gas and oil to the equation, a total of 63% of global power is derived from these 3 fossil fuels.

To have any realistic chance of limiting global warming to 1.5°C, the global power production relying on coal needs to be more than halved from 2,000GW to 800GW by 2030, meaning that at least 100GW of coal-fired power plants should be retired every year, according to projections by Carbon Tracker Initiative Citation Carbon Tracker Initiative (2018) Powering down coal. By the late 2030s, production capacity based on coal should be completely phased out.

However, current projections show that the global coalfired capacity will remain roughly the same as today in 2030, and there will still be a sizeable 800GW of coal-fired production capacity in the global power mix by 2050Citation Bloomberg New Energy Finance (2019) New Energy Outlook 2019.. This is inconsistent with commitments made under the Paris Agreement and will put global warming on a trajectory to far exceed 2°C.

This current pathway is a result of insufficient action to retire existing coal-fired power plants, as well as a planned coal build-out of more than 400GW – twice the current coal-fired capacity of Europe – in the next 30 years Citation Bloomberg New Energy Finance (2019) New Energy Outlook 2019. Governments need to stop constructing new coal-fired power plants and take steps to phase out existing plants at a much higher rate than today.

Newly constructed coal-fired power plants risk becoming stranded assets due to new carbon pricing regimes, air pollution regulation and decreasing green energy prices. An estimated 35% of the current coal-fired capacity already has higher operating costs than new green power capacity. By 2030 this figure could to increase to 96% of all coal-fired capacity Citation Carbon Tracker Initiative (2018) Powering down coal.

Speeding up the build-out of green power

Fossil fuels still dominate power production with a 63% share globally. To phase out fossil fuels from the global energy system and cut emissions in half by 2030, the build-out of green power production capacity must be accelerated dramatically.

 
With more than 1,000GW of capacity added in the past seven years, green power is growing quickly and now accounts for 26% of global power production. This brings the total installed capacity of green power to approximately 2,400GW. Wind and solar power alone now account for more than 1,000GW, which corresponds to five times Germany’s total power production capacity Citation Bloomberg New Energy Finance (2019) New Energy Outlook 2019.

The current speed of green power build-out is, however, not enough to limit global warming to 1.5°C. Continuing business as usual will lead to an estimated share of green power of 38% by 2030 and 55% by 2050. However, the IPCC estimates that the renewable share of power needs to reach 52% by 2030 and 77% or more by 2050 to limit global warming to 1.5°C.

These projections generally assume that by 2050, countries that have already come far in their green transition will source 100% green power or be very close to achieving that, allowing some developing countries to have a share of green power below the global average.

Dramatic increase in global power capacity needed by 2050

If we translate the global power demand to the required capacity build-out, it is clear that it will be necessary to increase the global installed green power capacity significantly. Today, we have 2,400GW of green power production capacity installed globally. Business as usual projections point to more than 10,000GW of installed green power by 2050 Citation IRENA (2019) Global Energy Transformation – Roadmap for 2050.

Different estimates exist of how much green power production capacity is needed by 2050 to keep global warming below 1.5°C. IRENA’s ‘well-below 2°C’ scenario calls for a total of 18,000GW of green power capacity  Citation IRENA (2019) Global Energy Transformation – Roadmap for 2050. Another scenario from Teske (2019) aiming for 1.5°C calls for almost 26,000GW of green power capacity by 2050 Citation Teske (2019) Achieving the Paris Climate Agreement Goals. According to these projections, current global power capacity must be increased by a factor of between 7 and 11, meaning that the current build-out projections for 2050 must be doubled or tripled.

The need for accelerated green power build-out towards 2030

To achieve the green power build-out needed by 2050, rapid action between now and 2030 is needed. IRENA projects that 2,800GW will be added to the global power mix by 2030, reaching 5,200GW of installed capacity. However, this is not enough to limit global warming to 1.5°C. For that to happen, IRENA estimates that around 7,800GW of green power production capacity must be installed by 2030.

This leaves a gap of 2,600GW between the projected and the required capacity. In other words, the world will need to double the planned build-out of green power to meet the 1.5°C scenario. This means that the required annual build-out must be almost 450GW compared to the projected annual build-out of 235GW. In comparison, a total of approximately 187GW of green power production capacity was added in 2018 Citation “Other” refers mainly to geothermal generation..