IEA (2022), World Energy Outlook 2022, IEA, Paris https://www.iea.org/reports/world-energy-outlook-2022, License: CC BY 4.0 (report); CC BY NC SA 4.0 (Annex A)
Energy security in energy transitions
Energy security is not just about having uninterrupted access to energy, but also about securing energy supplies at an affordable price. It is a topic of perennial importance, and is once again high on the policy agenda as a result of the global energy crisis sparked by Russia’s invasion of Ukraine. The surge in energy prices has been on a large enough scale to worsen considerably the global economic outlook, causing difficulties for households and industrial operations alike, and leading many governments to recalibrate their policy priorities.
Energy transitions offer the chance to build a safer and more sustainable energy system that reduces exposure to fuel price volatility and brings down energy bills, but there is no guarantee that the journey will be a smooth one. Traditional security threats remain, even as new potential vulnerabilities emerge. The World Energy Outlook 2022 proposes the following ten guidelines to help buttress energy security in the “mid-transition”, when the clean energy and fossil fuel systems co-exist and are both required to deliver reliable energy services.
- Synchronise scaling up a range of clean energy technologies with scaling back of fossil fuels. Investing in clean energy is key to avoid future crises while reducing emissions. In the Net Zero Emissions by 2050 (NZE) Scenario, around USD 9 is spent on clean energy by 2030 for every USD 1 spent on fossil fuels. Cutting investment in fossil fuels ahead of scaling up investment in clean energy pushes up prices but does not necessarily advance secure transitions. High fossil fuel prices could make it 10‑25% more expensive for fossil fuel importers to meet climate goals.
- Tackle the demand side and prioritise energy efficiency. The energy crisis highlights the crucial role of energy efficiency and behavioural measures in helping to avoid mismatches between demand and supply. Since 2000, efficiency measures have reduced unit energy consumption significantly, but the pace of improvement has slowed in recent years. Policies that accelerate the rate of retrofits are crucial as over half of the buildings that will be in use in 2050 have already been built.
- Reverse the slide into energy poverty and give poor communities a lift into the new energy economy. As a result of the pandemic and the energy crisis, 75 million people have lost the ability to pay for extended electricity services and 100 million for clean cooking solutions. In emerging market and developing economies, the poorest households consume nine-times less energy than the wealthiest but spend a far greater proportion of their income on energy. Turning these worsening energy poverty trends around is essential for secure, people-centred energy transitions.
- Collaborate to bring down the cost of capital in emerging market and developing economies. The cost of capital for a solar photovoltaics (PV) plant in 2021 in key emerging economies was between two- and three-times higher than in advanced economies and China. Tackling related risks and lowering the cost of capital in emerging and developing economies by 200 basis points reduces the cumulative financing costs of getting to net zero emissions by USD 15 trillion through to 2050.
- Manage the retirement and reuse of existing infrastructure carefully. Some parts of the existing fossil fuel infrastructure perform functions that will remain critical for some time, even in rapid energy transitions. They include gas-fired plants for electricity security - in the European Union peak requirements for natural gas rise to 2030 even as overall demand goes down by 50% - or refineries to fuel the residual internal combustion engine car fleet. Unplanned or premature retirement of this infrastructure can have negative consequences for energy security.
- Tackle the specific risks facing producer economies. Diversification will be crucial to mitigate risks. Some countries are investing part of their current windfall oil and gas profits in renewables and low-emissions hydrogen. Potential export earnings from hydrogen are no substitute for those from oil and gas, but low cost renewables and carbon capture, storage and utilisation (CCUS) can provide a durable source of economic advantage by attracting investment in energy-intensive sectors.
- Invest in flexibility – a new watchword for electricity security. Reliable electricity is central to transitions as its share in final consumption rises from 20% today to 40% in the Announced Pledges Scenario (APS) in 2050 and 50% in the NZE Scenario. Increasing variability in electricity supply and demand means that the requirement for flexibility quadruples by mid-century in both scenarios. Battery storage and demand‑side response become increasingly important, each providing a quarter of the flexibility needs in 2050 in the APS.
- Ensure diverse and resilient clean energy supply chains. Mineral demand for clean energy technologies is set to quadruple by 2050 in both the APS and NZE Scenario, with annual revenues reaching USD 400 billion. High and volatile critical mineral prices and highly concentrated supply chains could delay energy transitions or make them more costly. Minimising this risk requires action to scale up and diversify supplies alongside recycling and other measures to moderate demand growth.
- Foster the climate resilience of energy infrastructure. The growing frequency and intensity of extreme weather events presents major risks to the security of energy supplies. IEA analysis of the risks facing four illustrative assets shows that the potential financial impact from flooding could amount to 1.2% of their total asset value in 2050, and in one case would be four-times higher than this without flood defences in place. Governments need to anticipate the risks and ensure that energy systems have the ability to absorb and recover from adverse climate impacts.
- Provide strategic direction and address market failures, but do not dismantle markets. Governments need to take the lead in ensuring secure energy transitions by tackling market distortions – notably fossil fuel subsidies – as well as correcting for market failures. However, transitions are unlikely to be efficient if they are managed on a top-down basis alone. Governments need to harness the vast resources of markets and incentivise private actors to play their part. Some 70% of the investments required in transitions need to come from private sources.