Prospects for renewable energy developments and role of natural gas Sid Ahmed Hamdani Energy, Environment & Policy Analyst – GECF 40th IAEE International Conference 18-21 June 2017, Singapore

Contents Recent trends in renewables’ evolution Key drivers affecting future development of renewables Prospects of renewables and role of natural gas

Recent trends: Renewables in primary energy mix Primary Energy consumption by source (Mtoe) Fuels’ shares in primary energy consumption (%) Average Annual Growth Rate (2005-2015) Coal, Oi l& Gas: 81% in 2015 35% Ren:3.0% 31% Nuc:-0.8% 26% 28% Coal:2.7% 21% 22% NG:2.3% 11.6% 10% Oil:0.8% 6% 5% 2% 2% Source: GECF GGM Non- hydro renewables: Fastest growing source of energy; but its share in global primary energy mix remains far below natural gas and coal. Major part of growing energy needs is still satisfied by conventional sources.

Recent trends: Renewables by sectors and sources Renewables consumption by sector (Mtoe) Shares’ evolution of renewable sources (%) Renewable power (Average Annual Growth Rate 2005/2015: 10%) Source: GECF GGM Power generation as the most important driver of renewable growth, Penetration of wind and solar (increase from 10 Mtoe in 2005 to 97 Mtoe in 2015). Still dominance of biomass and waste in renewable consumption (88% of renewable energy in 2015) of which nearly 60% are traditional biomass.

Regional dynamics of renewables vs. natural gas Incremental primary energy consumption by energy sources and regions (between 2005 and 2015), (Mtoe) Gas has observed second largest incremental demand after coal Source: GECF GGM Over the last ten years… Non OECD Asia: Highest incremental renewables increase compared to other regions, but coal has been main driver. Natural gas has increased significantly by more than 200 bcm (driven by industrial and residential sectors) OECD Europe: Important progress of renewables associated to incremental decrease in conventional energy consumption North America: Significant renewables growth, but natural gas has been the most important driver in this region. We can see a substitution of coal by gas. Other developing regions:, Progress of renewables and gas consumption to meet growing energy needs. (Africa: significant increase of renewables driven by biomass used to satisfy energy needs of growing population)

Regional dynamics in power generation sector Incremental Power generation by fuels’ inputs and regions (between 2005 and 2015), (Mtoe) Regions observing increase in incremental power generation Regions observing decrease in incremental power generation Source: GECF GGM Different fuels dynamics observed in a context of penetration of renewables and stagnation of electricity demand OECD Europe: All energy sources decreased except renewables OECD Asia Pacific: Gas and coal progress at the expense of nuclear (Nuclear is key determinant in the region) North America: Important substitution of gas to coal (largest increase of gas between 2005 and 2015) Important electricity additional demand has supported consumption of all energy sources in emerging and developing regions Despite large penetration of renewables, coal and gas has increased in Non OECD Asia driven by China and India Large penetration of gas in power generation in Middle East and Latin America

Contents Recent trends in renewables’ evolution Key drivers affecting future development of renewables Prospects of renewables and role of natural gas

Key drivers of renewable developments Renewable investments Renewable investments trends by region (BN.$) Renewable investments trends by technology (BN.$) Source : Bloomberg 2016 Recovery in renewable investments following the downward trend after the 2011 peak Investment largely driven by the boom in emerging regions, especially China and India which offset largely the investment decline in Europe. Large progress in solar investments exceeding wind investments in 2010 Solar and wind represent respectively 55% and 38% of total investments Cost reduction of solar and wind has contributed in the recent boom of investments for adding new capacities

Key drivers of renewable developments Renewable costs Global average levelised costs of renewable technologies ($/Mwh) Cost reduction is a key driver for renewables capacity addition Solar has observed largest cost reduction last 5 years (-60%) followed by onshore wind (-13%) Further decrease of costs is expected, but there is a need to be cautious about renewable costs’ estimations: Critical parameters can affect significantly these estimations in different regions (capacity factors, cost and availability of land for project development) Costs usually does not include costs for integration of renewables Parabolic trough with storage Offshore wind Solar crystalline silicon (PV) Onshore wind Source : Bloomberg 2016

Announced renewable and GHGs mitigation objectives Key drivers of renewable developments Policy support in the Post Paris Agreement era Announced renewable and GHGs mitigation objectives European Commission REN: 20% (2020); 27% (2030) GHGs: 20% reduction (2020/1990 level); 40% reduction (2030/1990 level), United States China REN: State level target (Ex: California , 33%(2020) 50%(2030) GHGs: 26- 28% reduction (2020/2005 level); 32% (2030/2005 level) N. Fossil in energy mix: 15% (2020), 20% (2030). CO2 per unit of GDP: Reduce by 60% to 65% (2030/2005 level) Peaking of carbon dioxide emissions around 2030 India 40% of N. Fossil in PG installed Cap. (2030) CO2 per unit of GDP: Reduce 33 to 35% (2030/2005 level) Policies are elaborated to cope with Paris Agreement commitments. But, many uncertainties and challenges do exist regarding the effective implementation of these policies and their efficiency in supporting renewable energy

Key drivers of renewable developments Policy drivers and main uncertainties for renewable development Policy drivers for renewables Uncertainties and challenges United States Federal taxes credit for renewable projects. State level initiatives: Renewable Portfolio Standards (RPS), State level Regulations and incentives Climate action plan and Clean power plan (under revision by new administration, but potential implementation actions at states and cities levels ) Trump policy (withdrawal from PA, environmental regulation dismantling, budget restrictions for climate actions) RPS issues (opposition to high electricity prices due to renewable integration, some legal issues regarding particularly the competition rules) Policy drivers for renewables Uncertainties and challenges China Adoption of more ambitious renewables’ targets in the framework of the 13th plan Renewable supports schemes: Feed In Tariffs schemes, purchase obligation and priority in power dispatch Implementation of subsidies cutting plan in power sector Ability of power systems to integrate a large share of intermittent renewables Adjustment of support schemes to more market based approach (aiming to improve efficiency of policy support) Progress of power market and price reforms Power generation over capacities

Contents Recent trends in renewables’ evolution Key drivers affecting future development of renewables Prospects of renewables and role of natural gas

Future prospects: Renewables in primary energy mix Primary Energy consumption forecasts by source of Energy, Mtoe Fuels’ Shares in primary energy consumption Average Annual Growth Rate (2015-2030) Ren:2.4% Coal:1.5% NG:1.7% Oil:0.9% Source: GECF GGM Expected renewable growth driven by supporting policies, progress in renewable technologies and reduction of their costs. Natural gas is expected to be the fastest-growing fossil fuel and to play a key role in meeting growing energy needs in the Post Paris Agreement era; Renewable share still far below gas and coal by 2030 (Gas share will catch up with coal share in primary energy mix by 2030)

Future prospects: Renewables expected progress by region Incremental renewable consumption 2000 – 2015: 523 Mtoe Incremental renewable consumption 2015 – 2030: 700 Mtoe Expected shift in future growth of non hydro renewable consumption : Emergence of Non OECD Asia as key driver; Increasing role of North America, and less role of Europe Africa is expected to see less contribution in future renewable growth due to decreasing role of traditional biomass

Competition vs. complementarity Renewables and natural gas in future power generation mix : a complex interaction Competition vs. complementarity Large renewable capacity development can affect conventional power plants, but high costs, low energy content and intermittency are still constraining reliability of renewables in supplying growing electricity needs. Renewables are often prioritized in supplying power (Policy support schemes, low marginal costs) and this can affect operating hours of gas power plants in mature electricity markets. Renewables penetration can increase competition between conventional sources to supply residual electricity. Gas power plants can play a key role to provide efficient back up for renewables (rapid ramping up, energy efficiency, competitive cost). Gas power plants can increase flexibility of power systems (they can operate both in Peak, Intermediate and Base load regimes). Gas power plants contribute in improving affordability of power. Gas power plants contribute significantly in reducing GHGs and pollutants emissions. Gas power plants and renewables can be good partners in a sustainable transition to low carbon power systems

Renewables and natural gas in future power generation mix : Power capacities vs. power flows Forecasts based on power module of GECF Global Gas Model which includes 2 interlinked sub-models: Investment model forecasts capacities required to meet electricity demand Dispatch model forecasts power produced by different capacities Power capacities (GW) Power generation by fuels inputs (Mtoe) 25% total cap. 12% of total power 23% total power 22% total cap. Largest growth expected for renewables power generation capacities but less contribution in power supply compared to natural gas due to low capacity factors.

Future prospects: Regional dynamics of renewables and natural gas in power sector Incremental Power generation by fuels’ inputs and regions (between 2015 and 2030), (Mtoe) Natural gas and renewables based power expected to increase in all regions, except in OECD Asia affected by nuclear restart in Japan All energy sources will see an increase to meet the expected growing electricity demand Renewable energies are expected to raise significantly benefiting from policies’ supports, lower costs for solar and wind and progress of local equipment industry. Gas for power will grow but will be affected by competition of coal and by attractiveness of other gas consuming sectors, especially the industry. Stagnation of electricity demand, Renewables’ increase will be at the expense of coal and nuclear power. Natural gas expected to grow driven by environmental restrictions, expected rise of carbon prices, and flexibility advantage to ensure an efficient back up of renewables Renewables and natural gas progress at the expense of coal (driven by environmental restrictions at state level and competitive gas prices in US). Source: GECF GGM

Conclusion Despite renewable growth, major part of global energy needs would remain satisfied by conventional energy (fossil fuels represent almost 78% in the energy mix by 2030), Power generation is the main driver of intermittent renewables’ progress, which requires power systems to be more flexible to integrate renewables and to deal with their output variability. Gas can support flexibility and cost efficiency of power systems. Given its environmental, technical and economic advantages, natural gas would play a key role in meeting growing energy needs and contributing in sustainable development in the Post Paris Agreement era.