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Just one third of the world’s electricity comes from renewables. To hit net zero targets there needs to be a massive expansion of green power

In 2023 around 30% of the world’s electricity came from renewable sources. But the pathway to net zero presents challenges.

| 7 min read

It is a big task to decarbonise current electricity generation

The biggest contributor to global electricity generation was hydro at 14.7%, with wind providing 7.8% and solar 5.4%. Around a further 10% of electricity came from nuclear power. As we have argued in past articles, nuclear faces a series of station closures over the next decade given the age of reactors. Planned new investment in modern nuclear plants is going to find it difficult to offset these capacity losses fully, so nuclear will not add to low carbon power over the next decade. To get more no-carbon generation rests on a huge boost to renewables.

The small wind and solar base shows just how much will need to be invested to get to, say, 75% of all electricity generated from renewables. If it is up to solar and wind alone it requires a fivefold increase in their capacity. If more hydro can be added the sums are easier but still very demanding at around a two-and-a-half-fold increase.

It is an even bigger task to switch transport, industry and people’s homes away from fossil fuels

In order to get to net zero the world does not just have the big task of expanding no-carbon power generation for current levels of electrical power output. It also needs to carry out a huge shift in the type of energy used.

  • It has to change many homes from oil, gas and coal to electric heating.
  • It needs to change large fleets of diesel and petrol vehicles to electricity or some hydrogen derivative.
  • It needs to change factories from fossil fuel firing.

Electricity is just one fifth of total energy used worldwide. So to get to a much higher percentage of all energy used as low carbon electricity requires a further substantial increase in renewable electricity capacity on top of the increase to convert current generating systems using wind and solar.
There also needs to be more electricity capacity added to handle growth in the world economy over the three decades of the planned transition. The world will need a many-times multiple of current renewable capacity.

The need for a range of technologies

It is the magnitude of this ambition that is leading to the exploration of a variety of technologies that could decarbonise wide ranging areas of activity. Investors and industry are looking at a long list of potential developments, at synthetic fuels, at large batteries, at heat pumps, at electric vehicles, at electric furnaces for industrial processes, at more insulation to conserve energy, at the use of hydrogen and its derivatives, at better demand management, at more solar and wind generation directly linked to the factory or home of the user, and at various ways of storing variable renewable power to handle its intermittency.

Some think carbon capture and storage can do the job, allowing people to burn more fossil fuel whilst collecting and containing the CO2 that results. Some would like to develop direct air capture, that allows removing carbon dioxide from the air around us to put that into store, acting as a general offset for the extra CO2 fossil use is delivering. Both these technologies are at a pre-commercial stage and might become cheaper if they were rolled out in much greater volume. It is all additional cost which someone has to pay.

It could be added to government bills to be paid for out of taxation, or it could be built into electricity power charges in the case of carbon capture and storage for fossil fuel generators.

If it is added to bills there are issues over the impact that has on world markets for energy and for energy intensive products. It is leading to the idea of a carbon border tax to deal with the competitive advantage countries gain by not imposing extra carbon reduction charges or taxes on their businesses.

The truth is that to get people and companies to use less fossil fuel it has to become dearer to use. Net zero requires less energy use, which price rationing encourages, and switching to non-fossil fuel energy which requires a rise in the price of fossil fuel energy relative to low and no carbon energy. The world is in debate over how emerging markets can pay for the costs of their own transition, with demands for big transfers from advanced countries. World trade policy has to decide what adjustments to allow by way of tariffs, subsidies, carbon taxes and carbon border taxes as these will help determine who makes more and who imports more.

Recent investment performance

The global clean energy index produced a negative return of 20% last year and a negative 50% over the last three years. The Index is still below where it was in 2008 and well down on its recent high in early 2021. It performed very strongly in 2020. It suffered a bad fall in the banking crash of 2008-9 and fell away sharply in the bear market of 2021-2.

The last few years were negative for a variety of reasons. Rising interest rates and the new higher levels established by 2023 were bad news. Large investments in wind and solar farms require substantial borrowings. With much more interest to pay, returns are depressed so the investor needs higher power prices to cover this. The development of turbine blade problems with some of the latest very large wind turbine sets has led some to the need to budget more for repair and maintenance and has led some to worry about how long the sets will last as cash generators.

As more wind and solar has been added to systems so some governments have sought to impose windfall and other taxes when energy prices are higher. Many of the prices allowed for the electricity are managed as governments wish to give priority to renewables but also increasingly want to prove that renewables can be cheaper. Investors have been more reluctant to commit to new wind farms until future pricing and taxing is clearer and better for their returns.

The outlook

The major governments are committed to adding more renewables. It is also clear they need to add enormous amounts to hit the net zero targets which get more onerous from here.

Recent setbacks for wind require both technical fixes and government responses to allow decent returns on new investment. Falling interest rates will help this sector. The sector has more attractive valuations now after poor performance, and the outlook is beginning to improve.

We are watching carefully for triggers that might spark more investment support for these areas, and for policy developments that allow more profitable expansion.
(Data from Energy Institute Statistical Review of World Energy 2023)

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Just one third of the world’s electricity comes from renewables. To hit net zero targets there needs to be a massive expansion of green power

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