The energy transition continued apace in 2022 despite Russia’s invasion of Ukraine, ongoing disruptions to global supply chains and inflationary pressures – all of which translated into high energy prices around the globe.
However, sustained high prices may ultimately mark an inflexion point − or prove to be a major catalyst − in shifting the global energy system away from a dependence on hydrocarbons and towards lower-cost clean energy resources.
Hydrocarbons are unevenly distributed around the world, require supply chains that are vulnerable to disruption, and carry the financial uncertainties associated with the cyclical and often volatile pricing of commodities.
In 2022 hydrocarbons-producing countries reaped record revenue on the back of high oil and gas prices.
At the same time, renewable energy capacity increased by more than 8%, surpassing the 300-GW mark for the first time, according to the International Energy Agency (IEA). Global electricity energy demand growth, meanwhile, slowed to 2.4%, down from 6% in 2021.
While an accelerating energy transition promises short-term challenges with bouts of supply disruption and financial volatility, it also offers emerging markets tremendous opportunities if they can embrace the clean technologies and sources that will shape the future energy mix.
Energy security took centre stage with the disruption of Russian hydrocarbons supplies to Europe in the aftermath of its invasion of Ukraine. Russia has the world’s largest natural gas reserves and has historically accounted for some 40% of Europe’s gas imports – and as much as 55% of Germany’s in recent years.
As European countries scrambled for alternatives to Russian hydrocarbons, new policies and initiatives advanced the move towards new sources of imports and alternative energy sources.
In May the EU announced a ban on seaborne imports of Russian oil, which presented an opportunity for oil-exporting emerging markets − both Organisation of the Petroleum Exporting Countries (OPEC) and non-OPEC members − to increase production to meet demand.
When the ban was instituted in December, the EU found itself with ample supply thanks to increased cargoes in the intervening months from Africa, Latin America, the Middle East and the US.
Members of OPEC and other allied oil-producing nations, collectively known as OPEC+, cut production in September as global demand softened, which has thus far avoided the oil-supply shortages envisioned by the EU ban.
To curtail Russian revenue from natural gas, the EU is also debating a measure to cap its price, but the bloc has yet to agree on the measure.
The EU’s attempt to limit Russian hydrocarbons has encouraged countries in Latin America to focus on developing green hydrogen from clean energy resources that can be exported to Europe and consumed locally.
Argentina announced plans in June to invest $6bn in the province of Tierra del Fuego − located at the southernmost tip of South America − to develop a hydrogen and ammonium industry powered by wind and transform the country into a major exporter to Europe and Asia.
Brazil has similar ambitions and is seeking to leverage its position as the world’s second-largest producer of hydroelectric power, with substantial wind and solar resources.
Gulf national oil companies are also looking to bolster hydrogen production. In March Saudi Arabia started construction on the $5bn wind- and solar-powered hydrogen plant at its NEOM mega-project, which will be the largest hydrogen plant in the world upon completion, producing 650 tonnes per day.
Electricity and emerging markets
Going forwards, the speed and effectiveness of the energy transition hinge on the electricity sector, where replacing coal with solar and onshore or offshore wind – or even reviving more traditional renewable sources like hydroelectric – could go a long way towards meeting global electricity demand.
Among these sources, solar began to take the lead in 2022, eclipsing wind in China and Australia. Of the 300 GW of growth in renewable energy capacity in 2022, solar photovoltaic (PV) accounted for 60%, or 190 GW, of the increase, marking growth of 25% from 2021.
Leading solar researchers meeting at the eighth World Conference on Photovoltaic Energy Conversion in September predicted that the next 1 TW of solar PV capacity would take as little as three years to install.
Overall, the IEA now expects that the imperatives of energy security will drive global renewable power capacity to expand by 2400 GW between 2022 and 2027, the equivalent of the entire power capacity of China and 30% more than was forecast in 2021.
Global solar PV capacity is set to triple during this period, while wind capacity is expected to double.
The problem will then be how to handle all that clean electricity, as the world requires an estimated $14trn in investment in power grids − including decentralised and inter-regional links − by 2050 to keep pace with renewable energy gains.
Earlier this year Vietnam’s Ministry of Industry and Trade announced that no new solar or wind projects would be connected to its grid in 2022, citing the fact that the build-out of over 20 GW of renewable capacity over the last three years has led to frequent grid overload and wasted renewable power generation.
New technologies for traditional clean sources
Technological advances are helping to revive traditional clean energy resources that are domestically generated, most notably hydroelectric power.
Severe drought in China and elsewhere resulted in lower output in 2022, but the IEA forecasts that the adoption of pumped storage hydropower (PSH) will expand the role of hydropower in the global energy mix. The technology is projected to account for 65 GW of additional hydropower capacity by 2030, mostly in Asia and Africa.
New cross-border trade deals were signed in 2022, with Nepal planning to build out and send hydropower to India through the West Seti and Seti River projects, and Ethiopia sending 200 MW to Kenya as part of the Kenya-Ethiopia Highway Project.
Formed by breaking down organic waste − agricultural, food, municipal or animal, including manure and sewage − through a process known as anaerobic digestion, biogas can power national grids and supply heating for households, while residue from anaerobic digestion can be used as fertiliser.
Although the biogas industry is well established in Europe and North America, it has ample unexplored potential in emerging markets, especially in Asia, where crop residue and animal manure could be harnessed to help biogas account for up to 20% of global natural gas supply.
For example, Thailand has launched a scheme that uses feed in tariffs to reach power-purchase agreements, with plans to add 335 MW of biogas capacity between 2026 and 2030.
Green climate finance
As emerging markets continue to add capacity to generate renewable energy, some of the world’s wealthiest countries could help finance their energy transitions.
In 2022 the focus for such efforts was Indonesia, the world’s eighth-largest emitter of carbon, where officials from several developed nations discussed ways to accelerate decarbonisation, including the possibility of launching a Just Energy Transition Partnership to bring in donor governments, development banks, climate-focused organisations and the private sector to fund clean energy projects that provide attractive returns on investment.
In 2022 there was also a pronounced rise in climate-friendly debt issuance in emerging markets, which take the form of countries leveraging their natural environments to fund environmental projects in the form of so-called green or blue bonds.
Many emerging markets in Africa have turned to creative climate financing to address shortfalls in public finance and would welcome bond issuances from international organisations and the private sector to fund climate-related projects.
Southern and East African nations are now seeking to use blue bonds to build the “Great Blue Wall”, which aims to protect coastal and marine areas running from Somalia to South Africa in the Indian Ocean, sequester 100m tonnes of CO2 and create 1m blue jobs by 2030.
The Bahamas put a slight twist on this approach, offering $300m in blue carbon credits from the country’s mangrove forests, seagrass beds, and other ecosystems that absorb and store significant amounts of carbon to companies that want to offset their own emissions.
While financing is the most critical component of the energy transition, international diplomatic efforts through multilateral organisations and conferences are also acting as a catalyst.
The COP27 UN Climate Change Conference in Sharm El Sheikh, Egypt in November was held after a year that saw a spike in natural disasters, most notably drought in India and devastating flooding in India, Pakistan, South Africa and West Africa.
One of the most salient outcomes of COP27 was an agreement on a loss and damage account to protect the nations that are most vulnerable to climate disasters. The details of how this fund will operate, however, have yet to be made public.
Perhaps the most encouraging development for the energy transition occurred this week, with the announcement that US scientists in California had achieved a breakthrough in nuclear fusion energy after decades of research and billions of dollars of investment.
In February a different nuclear fusion project in France – powered by collaboration among 35 countries including China, EU member states, Russia and the US – also achieved a major technological breakthrough.
While scaling up the technologies to deliver fusion energy for public consumption will take years if not decades to achieve – along with commensurate development of electricity grids − the importance of this development for the energy transition cannot be overstated.
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