Fuel costs for natural gas and coal-fired power generation rose in 2021 but are expected to decline in coming years, the International Energy Agency (IEA) predicted in its latest biannual report. Electricity market report.
“Sharp electricity price spikes in recent times have caused hardship for many households and businesses around the world and risk becoming a driver of social and political tensions,” said Fatih Birol, executive director of the OUCH.
Citing a “rapid economic rebound” and “more extreme weather conditions than in 2020”, the IEA said global electricity demand rose by 6% last year. The report says the annual increase equates to more than 1,500 terawatt hours of power generation.
Coal-fired power generation rose 9% last year, buoyed by the switch from gas to coal triggered by high natural gas prices, the IEA said. The switch from gas to coal has also resulted in a significant increase in greenhouse gas emissions in the United States.
The agency pointed out that gas-fired generation increased by a more modest 2% during the period.
“The surge in demand has exceeded the ability of electricity supply sources to keep pace in some major markets, with shortages of natural gas and coal causing price volatility, demand destruction and adverse effects on power generation, retailers and end users, especially in China, Europe and India,” the IEA said.
China’s electricity demand has been growing at about 10 percent annually, accounting for about half of global demand growth for 2021, the IEA noted. More than half of China’s provinces are struggling with power rationing amid soaring demand.
The IEA said its price index for major wholesale electricity markets almost doubled year-on-year in 2021 and reflected a 64% increase from the 2016-2020 average. He noted that the increases were particularly strong in Europe, Japan and India but “were more moderate in the United States where gas supplies were less disrupted”.
The agency also noted that global nuclear generation grew by 3.5% annually, while renewables increased by 6%.
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Acceleration of demand growth
Looking ahead, the IEA forecasts electricity demand growth to weaken to an average of 2.7% per year for 2022-2024. The agency, however, warned that Covid-19 and high energy prices “bring some uncertainty to this outlook”.
Until 2024, the IEA predicts average annual growth rates in electricity demand of 8% for renewables and 1% for nuclear.
Thanks to slower growth in electricity demand and “significant additions of renewable energy”, the IEA also said that “fossil fuel-based generation is expected to stagnate in coming years”.
The IEA forecasts “about 1% per year” of growth in gas-fired generation, coupled with a slight decrease in coal-fired generation “as eliminations and declining competitiveness in the United States and Europe are offset by the growth of markets like China and India.”
Citing “improving availability of supply,” the IEA report also predicts “downward pressure on gas prices” over the 2022-2024 period.
The IEA presents a scenario with “Henry Hub averaging 12% below its 2021 levels according to forward curves at the start of January 2022. Nonetheless, coal-based generation remains more competitive than gas, relative to the period 2018-2020”.
The Energy Information Administration, the statistical arm of the US Department of Energy, predicts a moderation in household gas prices.
Tom McNulty, president of Houston-based energy transition consultancy TJ McNulty & Co., told NGI that the significant level of coal-to-gas shift noted in the IEA report “is the terrible result of poor government policies that seek to reduce oil and gas production, and it is also the result of short-sighted policies that seek to eliminate hydrocarbons such as natural gas from the energy stack far too quickly.
He called natural gas a “pivotal molecule” that represents “the most critical element” for the energy transition, adding that another “answer” would be more nuclear energy.
“Electricity generated from renewables will and is expected to increase, but cannot be relied upon today for secure baseload power, especially in industrialized economies,” McNulty said.
He added that the shift from gas to coal “would not continue if natural gas production increased by 7% right now in the United States and continued to grow from there. The United States is a natural gas superpower and should supply markets around the world much faster. »