Top Trends for the Global Energy Market in 2023
STORY INLINE POST
As we have seen in previous years, the global energy market is undergoing changes and developments at an unprecedented rate. This evolution has been fueled by a range of factors, including geopolitical conflicts disrupting supply chains and rising international pressure to mitigate the impact of climate change. Amid these circumstances, certain trends are expected to continue to influence the landscape of the energy industry in 2023.
1. Growth of renewable energy: Renewable energy has grown steadily for the last decade, led primarily by wind and solar. According to a report published in December 2022 by the International Energy Agency (IEA), solar PV capacity is set to triple by 2027, becoming the largest source of power capacity in the world.1 This represents a massive expected shift in our energy mix. The same report projects the global capacity of wind energy to double in the same period, both sources accounting for over 90% of the added capacity of renewable energy in the next five years. Other sources, including hydropower, geothermal, and bioenergy capacity, also experienced an increase last year and are projected to keep growing.
This accelerated increase is due to multiple factors: increased demand for energy, environmental concerns, policies, and incentives supported by global commitments, falling costs of renewable technology, and threats to energy security. As the world’s population grows, the energy demand increases with it. Traditional energy sources like oil, coal, and natural gas are not satisfying the needs of the global population. Moreover, the alarming effects of climate change have driven global efforts to accelerate decarbonization and the transition toward clean energy. As a response, in 2015, 196 countries signed the Paris Agreement, a legally binding international treaty to limit global temperatures to 1.5 degrees Celsius. To achieve this, countries are required to set their own targets for reducing greenhouse gas emissions and to regularly report on their progress. Even though most countries are not on track to achieve their targets during the predetermined time frame, some have passed crucial regulatory frameworks to support the transition to clean energy. The US passed the Inflation Reduction Act in 2022 with tax credits for investment in renewable energy production (solar, wind, nuclear, hydrogen) and many other benefits for clean energy production.2 In addition, the reduction in costs for the components of renewable energy sources has made them much more competitive. The International Renewable Energy Agency (IRENA) has recorded a decrease of 90% in the price of solar energy modules since 2009 and a price decrease of 40-78% in wind turbine prices since 2010.4
The war between Russia and Ukraine has had significant impacts on the global energy market, including sharp rises in energy prices and disruptions of supply chains. Since Russia is a major producer and exporter of fossil fuels, the conflict has resulted in a decrease in the supply of these resources, leading to increased prices and volatility in energy markets worldwide. Many countries that have been affected are looking to diversify their electricity mix, integrating renewables and other sources to prevent risk from overreliance on one source.
2. Innovation in the energy storage industry: Storage is key in supporting the increase of energy demand, renewable energy generation, and reliable grids. Since energy from wind and solar are intermittent, mechanisms for storage are used to store excess energy so it can be used later when there is no generation. This helps to ensure that renewable sources can provide a dependable and consistent source of power. Not only does energy storage support the constant flow of energy from renewables, but it also improves the efficiency, reliability, and resilience of the electric grid, minimizing spikes in electricity use and reducing strain on the grid.5 Additionally, in the event of an outage or an interruption, storage can provide power to essential services. This year, we expect to see an improvement in battery technology to increase capacity and lifetime, while reducing costs. According to BloombergNEF, battery costs have decreased by 97% since 1991 and fall by an average of 19% when capacity doubles. There is also an expected integration of artificial intelligence (AI) to optimize storage usage and cooling technologies to keep batteries in their temperature range of production.
3. Products to enhance energy efficiency: Some products that have become popular include smart thermostats that automatically adjust the temperature to save energy, LED lightbulbs that consume significantly less electricity and have a longer lifetime than traditional bulbs, certified appliances, including refrigerators, washers, and dishwashers, and smart power strips that turn off the power on devices that are not in use. In 2022, energy conservation products helped reduce energy demand and save a total of US$680 billion in energy bills.6
4.- Electrification: The electrification of transportation and HVAC systems can reduce greenhouse gas emissions and improve air quality. Products like heat pumps and electric boilers for hot water are gaining popularity, driving away the use of gas or oil. The electrification of the transportation sector is also experiencing significant growth because of its large use of fossil fuels and high emission levels. BloombergNEF projected that 55% of new automobile sales worldwide will be electric vehicles (EVs).7 Governments are passing regulations and incentives to support the adoption of electric vehicles. The government of Canada set a goal that by 2035 all sales of light-duty cars and passenger trucks will be of zero-emission vehicles, supported by incentives and funding for EVs and charging infrastructure.3
5- Domestic production to secure energy supply: The COVID-19 pandemic and the geopolitical conflict between Russia and Ukraine has exposed the vulnerabilities of energy supply chains globally. Therefore, there are growing motivations to enhance small-scale and large-scale generation products locally, reducing reliance on energy imports. At the national level, some governments have taken actions to enhance local energy production, providing loans for utility-scale projects, tax credits, grants, and rebates for clean energy. Moreover, there has been a substantial increase in distributed generation projects, which are usually powered by renewable energy sources.
6. Increase in funding and investment: There is a growing trend of investment in products supporting the energy transition at both the government and private levels. In 2022, there was a total investment of US$ 1.4 trillion for renewable energy and of US$560 billion in energy efficiency.6 Moreover, conscious investors and new regulation on corporate emission reporting standards, published by the Corporate Sustainability Reporting Directive (CSRD), the Securities and Exchange Commission (SEC), and other entities, will continue to support this trend in the upcoming year. However, the IEA highlights that global investment in renewable energy needs to double by 2030 in order to meet climate targets, a reminder that even though we are on the right track toward sustainability, we need more aggressive mechanisms and funding to accelerate the transition.
We’re in a period of major transformation in the energy sector away from fossil fuels. We can say that all actors in society, government and non-government, are working in the same direction to move our economies and societies away from fossil fuels. As the saying goes, “the stone age did not end because we ran out of stones.”