Three trends that will shape the energy sector in 2023
January 12, 2023
2022 has been a tumultuous year for the world’s energy systems, with the worst global energy crisis in decades having a ripple effect on people across the world. In November, COP27’s success—in particular the agreement to set up a 'loss and damage' fund—was tempered by missed opportunities, such as for stronger language on curbing emissions, a push to reduce the use of all fossil fuels, or any clear signals for developing countries that adaptation funding will indeed double by 2025.
As the energy crisis continues, 2023 will be a critical year to accelerate a just energy transition. We outline three trends that we expect will shape this transformation of energy systems in 2023.
1. The energy crisis will continue to hit the world’s poorest the hardest, especially at the food-energy-poverty nexus.
Inflation, the energy crisis and rising interest rates, are pushing over 50 countries are at risk of bankruptcy, unless developed countries offer urgent assistance. Around 75 million people who recently gained access to electricity are likely to lose the ability to pay for it. 100 million people may revert to the use of traditional biomass for cooking. At the current rate of progress, 670 million people will remain without electricity by 2030 - 10 million more than projected last year. Food insecurity is likely to be exacerbated by the energy crisis and additional factors. An estimated 49 million people in 46 countries currently live in near-famine-like conditions, including 750,000 people at immediate risk of starvation, of whom about 75 percent are concentrated in Ethiopia and Yemen.
Because of multiple and interconnected global crises, around 75 million people who recently gained access to electricity are likely to lose the ability to pay for it.
2. While fossil fuels account for most of the power we use, there are clear signals that the economies of the future are decarbonized economies.
The good news: the global energy crisis has triggered unprecedented momentum behind renewables. The International Energy Agency predicts the world is set to add as much renewable power in the next 5 years as it did in the past 20. This means that total capacity growth worldwide of renewable power is set to almost double in the next five years, overtaking coal as the largest source of electricity generation by early 2025 globally. This expected increase is 30% higher than the amount of growth that was forecast just a year ago, highlighting how quickly governments have thrown additional policy weight behind renewables. The Economist finds that overall, renewable energy consumption will increase by about 11%, with Asia leading the way.
However, this may not be enough to offset the simultaneous fall back on fossil fuels that we are witnessing across the globe. The Economist’s Energy Outlook 2023 outlines three trends that will eventually hinders global energy transition efforts: marginal growth in coal consumption to compensate for gaps in gas supplies; more extreme weather events will force many countries to fall back on fossil fuels; and renewable energy investment will weaken.
Total capacity growth worldwide of renewable power is set to almost double in the next five years, overtaking coal as the largest source of electricity generation by early 2025 globally.
3. The “just energy transition” was the 2022 energy buzzword. What now?
Throughout 2022, there has been a growing recognition of the need for a ‘just transition’ to a low-carbon economy, which culminated at COP27 with several announcements. South Africa signed loan agreements worth EUR 600 million with France and Germany as part of its continued efforts to implement the Just Energy Transition Partnership announced at COP26. The Indonesia Just Energy Transition Partnership launched at the G20 Summit in parallel with COP27 and will mobilize US$20 billion over the next three to five years to accelerate a just transition. Vietnam, India, and Senegal have also expressed interest in entering Just Energy Transition Partnerships.
The potential is there: the International Institute for Sustainable Development notes that, “as they involve a relatively small group of actors, JETPs can potentially make much faster progress on the energy transition than what would be possible in the UN climate talks themselves, where large oil and gas-producing countries could veto agreement.”
Is it all talk? The outcomes of COP27 show that more – much more – remains to be done to bring governments to take decisive action to reduce emissions at the scale and pace needed to avoid a climate breakdown.
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