LEE SMITH: Key role of energy policy in transition highlighted in report

The Energy Transition Outlook Report was issued earlier this month. Now in its sixth edition, this esteemed global report shares the results from DNV’s independent research of the world’s energy system.

With more than 100 contributors, it covers the period 1980-2050 and forecasts the energy transition on a multiyear scale globally and in 10 world regions.

DNV is a world-leading classification society and expert in testing, certification and technical advisory services to the energy value chain, including renewables, oil & gas and energy management. Generally, when DNV talks the energy industry listens.

The methodological framework of the report is logical to follow. Starting with population and GDP per person, contributing to energy demand, energy transformation and finally supply, the report reveals how policy undeniably influences all aspects of the energy system. Energy efficiency improvements in extraction, conversion and end use are cornerstones of the energy transition.

Despite population growth, in the next 30 years global energy demand is expected to level off, even as the global economy grows. This historic decoupling is due to the dramatic effect of efficiency gains, largely enabled by accelerated electrification, that are expected to outpace economic growth in the coming years.

The report looks at the lingering effects of the energy demand shock from the Covid-19 pandemic, and the effect of the disruption to energy supply brought on by Russia’s invasion of Ukraine. While both developments have caused large shifts in demand and supply in the short term, their impact over the longer term is marginal compared with the key drivers of the transition — rapid electrification, tightening policy on decarbonisation and the plunging cost of renewables and storage.

This is expected to occur despite tremendous growth in energy service linked to expanding floor space and cooling needs, growth in demand for manufactured goods, a rise in annual passenger trips in aviation, and a near-doubling in the size of the vehicle fleet.

Short term forecast highlights include:

• High energy prices and a greater focus on energy security due to the war in Ukraine will not slow the long-term energy transition.
• Europe is on track to accelerate its renewables buildout to achieve energy security.
• In the rest of the world, tackling high energy and food prices may shift decarbonisation down the list of priorities in the short term.
• The long-term influence of the war on the pace of the energy transition is low compared with main long-term drivers of change: plunging renewables costs, electrification, and rising carbon prices.
•  COP26 and the Intergovernmental Panel on Climate Change (IPCC) have called for urgent action, which has not materialised. Disappointingly, emissions remain at record levels.
• Emissions must drop globally by 8% annually to reach net zero by 2050.
• Opportunities for intensified action abound — the transition is opening up unprecedented opportunities for new and existing players in the energy space.

Long-term forecast highlights are the following:

• Electricity remains the mainstay of the transition. It is growing and, encouragingly, greening worldwide.
• With an 83% share of the electricity system in 2050, renewables are squeezing the fossil share of the overall energy mix, which is expected to dip to just below 50% in 2050.
• Despite short-term raw material cost challenges, the capacity growth of solar and wind is unstoppable: by 2050 they are anticipated to have grown 20-fold and 10-fold respectively.

We are heading towards a 2.2 °C warming and consequentially, battle-ready policy implementation is needed to achieve net zero by 2050. Significant, swift action is regarded as critical to curb record emissions. The window to act is closing.

No new oil and gas will be needed after 2024 in high-income countries, and after 2028 in middle- and low-income countries. Net zero means leading regions and sectors have to go much further and faster.

The Organisation for Economic Co-operation & Development (OECD) regions, of which SA is part, must reach zero by 2043 and net negative thereafter. China needs to reduce emissions to net zero by 2050.

Renewable electricity, hydrogen and bioenergy are essential, but insufficient. Almost a quarter of net decarbonisation relies on carbon capture and removal combined with land-use changes (reduced deforestation).

In 2007 the OECD council at ministerial level adopted a resolution that led to SA becoming one of five key partners to the OECD, with Brazil, China, India and Indonesia. SA's participation spans a wide array of policy issues, including macroeconomic policy and structural reform, debt management, domestic resource mobilisation, rural and urban development, and other areas.

However, it is time to take substantive action internally, and to develop a solid energy policy that will aid in the country’s energy transition. Our geography puts most of the country in prime position for solar and wind power to flourish, but without political will, policy reformation, and financial incentives, adoption will be slower than ideal.

We are seeing unprecedented growth of solar, ranging from utility-size plants developed to power mines to wide-scale adoption in SA's commercial and industrial sectors. This trajectory is good news. However, the data shows that the window to act is closing, and the time for change is now.

• Smith is chief operations officer at New Southern Energy.