Obtain the data you need to make the most informed decisions by accessing our extensive portfolio of information, analytics, and expertise. Sign in to the product or service center of your choice.
Key trends, Europe's focus on Russia-Ukraine crisis, and clean
energy investments
The following provides a brief overview of selected reports in
the Global Power and Renewables service from March 2022. Learn more
about our Global Power and Renewables Service and the reports
featured in this post, click
here.
March reports summarized key trends for global power and
renewables and offered an in-depth look at the Russia-Ukraine
crisis in Europe as well as supply security and grid reliability
issues, in addition to clean energy investments.
Key 2022 trends for global power and renewables
While reports earlier this year offered a look at important
issues facing regional power markets in 2022, the IHS Markit
Strategic Report
"Six anticipated trends in 2022 for global power and renewables
markets" provides an overview of key trends for global
power and renewable markets in the coming year.
According to the report, and continuing a trend that was
observed last year, electricity demand growth is expected to
continue in 2022 but at a more moderated level as countries get
closer to pre-pandemic levels, although uncertainties abound
depending on new COVID-19 waves or lockdown restrictions. At the
same time, the ongoing global energy supply crunch—exacerbated
by the recent events surrounding the Russia-Ukraine
crisis—means that high and volatile power prices will continue.
Supply chain bottlenecks and increases in raw material prices,
amplified by recent events, are also putting pressure on renewable
costs. Yet renewables are expected to continue to grow, driven by
decarbonization targets and secondary routes to market such as
corporate power purchase agreements. Meanwhile, infrastructure
challenges and grid reliability will dominate policy discussions
while tensions between decarbonization and supply security lead
governments and companies to consider an expanding range of clean
technologies.
The IHS Markit Strategic Report "Middle East and North
Africa Energy and Economy Review and Outlook 2021-22" offers a
detailed outlook of the situation in the Middle East and North
Africa, whereby supply security and energy diversification are also
leading the region's energy strategy.
Russia-Ukraine crisis: Europe focus
On the back of already tight global fuel markets, recent events
surrounding the Russia-Ukraine crisis have pushed spot coal and gas
prices to record highs, making wholesale power prices skyrocket.
The situation is especially pronounced in Europe given its
dependence on Russian fuel imports.
According to the IHS Markit Insight "How strong is the
storm? Assessing the impact of a severe, sustained Russia-Ukraine
crisis on the European economy and energy", under a "severe"
scenario, European wholesale energy bills could treble—reaching
close to €1,500 billion in 2022, with windfall profits to non-gas
generators. European governments have started intervening with
measures to reduce the impact of high energy prices on
consumers.
In early March, the European Commission released its REPowerEU
proposal, an outline of a plan to make the European Union
independent from Russian fossil fuels well before 2030. According
to the IHS Markit Insight "What is needed for Europe to
decrease gas demand by 40% by 2030?", reducing reliance on
Russian natural gas will require extraordinary efforts across all
sectors and a steep change in the pace of development of clean
technologies. While all sectors would need to play their part in
cutting gas demand more aggressively, certain measures—notably
in the power sector—would allow for immediate and considerable
gains.
Indeed, according to the IHS Markit Insight "Setting the
vision: The impact of REPowerEU on the European power system",
delaying half of the coal and/or nuclear retirements scheduled for
2022 and putting back in operation the coal capacity that is
currently in reserve could displace 50 TWh of gas-fired generation
and reduce gas consumption by 9 Bcm through the rest of 2022.
REPowerEU also seeks to front-load renewable deployment by doubling
capacity by 2025 and tripling it by 2030. While the target seems
achievable for solar photovoltaics, it is much more challenging for
wind—specfically onshore wind—and would require a total
transformation of the permitting process and a huge acceleration of
repowering. The IHS Markit Insight "Can Europe deliver the
renewable ambition in REPowerEU?"considers an Accelerated
Case, pushing all hurdles aside, in which European wind and solar
capacity grows from 342 GW in 2021 to 1,007 GW in 2030—within
reach of the REPowerEU target of 1,012 GW and equivalent to the
renewable capacity in 2037 in the current Planning Case. According
to the report, the overperformance of the solar sector partially
compensates for the hurdles in onshore wind deployment and lead
time for offshore wind to take off.
Supply security and grid reliability
The global energy supply crunch, now exacerbated by the
Russia-Ukraine crisis, and climate-related extreme weather-induced
power supply disruptions of 2021 have pushed supply security and
grid reliability to the forefront of policy discussions.
In late March, China released its 14th Five-Year Plan (FYP) for
the energy sector. According to the IHS Markit Insight "China's
14th Energy Five-Year Plan: Pivoting toward a 'modern energy
system'", while renewable additions and system balancing
capability will remain the key focus in the country's energy
transition, supply security will hold higher priority than in the
previous FYP—and hence, coal and coal-fired power reductions
will take a more cautious pace. Market reforms will be a key tool
to optimize resource allocation to achieve the country's
sustainability and supply security goals. According to the IHS
Markit Insight "China's ancillary services paradigm shift:
Market rules adapt to a changing power system", China also
released the first update to its ancillary services market rules in
late December 2021, aimed at increasing competition and adapting
ancillary markets to better serve the country's evolving power
system. The changes will help address the rising penetration of
intermittent renewables and remove market-entry barriers previously
faced by adjustable load resources and battery storage.
In Texas, to avoid the extremely high prices that occurred
during winter storm Uri and to incentivize more investment in
dispatchable thermal resources, the public utility commission
recently lowered the system-wide offer cap and reformed the
scarcity pricing mechanism used in the Electric Reliability Council
of Texas (ERCOT) wholesale electricity market. At the same time,
the region is undergoing a rapid shift in its generation resource
mix. The IHS Markit Insight "ERCOT scarcity pricing reforms:
Will it lead to more investment in dispatchable thermal
resources?"examines the recent scarcity pricing reforms and
finds that the rapid growth in zero and near-zero marginal cost
resources will likely weaken the impact of those reforms. According
to the report, scarcity pricing reforms alone are unlikely to
support new investment in dispatchable thermal resources.
Mexico's government is also pushing regulatory changes that aim
to increase the role of the state utility Comisión Federal de
Electricidad (CFE), with reliability and security of supply as the
main drivers. The proposed changes would ultimately lead to an
increase of natural gas use over renewables. The IHS Markit Profile
"Mexico Power Market Profile" provides a detailed update
of key issues related to the country's power sector. Mexico
currently imports by pipeline nearly 60% of its national gas needs
from the United States and its exposure to natural gas price
fluctuations is large as seen in 2021 during the Texas winter
storm, which resulted in gas price spikes as well as gas import
cuts.
In regions like Sub-Saharan Africa, there is an urgent need to
improve power system reliability. According to the IHS Markit
Insight "Beyond electricity generation: Examining Sub-Saharan
Africa's grid reliability challenges", more than half of the
region's population has no access to electricity. Higher levels of
intermittent renewable generation are also expected to further
strain the system. The region's long-term energy planning will have
to take these challenges into account and embed energy transition
objectives into a wider scope that aims to increase the reliability
of the central network while allowing solutions in the distributed
system to increase electrification across the population, as well
as off-grid systems for isolated areas with low demand levels.
Meanwhile in Japan, a magnitude 7.4 earthquake hit Fukushima on
17 March 2022, causing 3.3 GW of thermal power plants in the
eastern region to go offline and creating concerns over power
supply amid the winter month. According to the IHS Markit Insight
"Tokyo and Tohoku face blackout fears after Fukushima
earthquake", a cold winter front also hit Japan on 22 March
and, at one point, demand exceeded 100% of the supply volume,
causing the Ministry of Economy, Trade, and Industry to issue a
power supply crisis warning for the first time since 2011. The
event was yet another warning after the winter 2020/21 supply
crisis demonstrating the dangerously low reserve margin the country
is balancing upon, and a need for further coordination across the
nation to balance power amid its energy transition.
Clean energy investments continue
Against this backdrop of heightened supply security concerns,
efforts to ramp up clean energy investments continued.
In Southeast Asia, the issuance of green debt as a new source of
financing projects has taken off in recent years, driven by
governments' push to increase renewable development, investors'
net-zero commitments, and the improved credibility of green bonds.
According to the IHS Markit Insight "Green bond rises as a new
financing vehicle in Southeast Asia", the issuance of annual
green bonds and loans for funding renewable projects in the region
grew to US$4.4 billion in 2021—a five-fold increase over the
past five years. Renewable energy was the largest sector, capturing
40% of total proceeds, and independent power producers were the
most active, although institutional investors are also stepping up
their efforts.
To achieve its new net-zero by the 2050s emission target,
Singapore also recently increased its carbon tax from
S$10-15/metric ton to S$50-80/metric ton by 2030 (the tax is
currently at S$5/metric ton). According to the IHS Markit Insight
"Singapore's carbon tax increase of up to 16-fold will make
low-carbon technologies and power imports cost competitive",
when the tax reaches S$55/metric ton, coupling a combined cycle gas
turbine (CCGT) with carbon capture technology becomes cost
competitive against a stand-alone CCGT in terms of its short-run
marginal cost. Financial support from the carbon tax revenue has
already been earmarked for decarbonization and can further help the
deployment of low-carbon technologies. The carbon tax also makes
low-carbon power imports a more viable option for all
customers.
Yet despite these efforts, challenges persist in the region.
According to the IHS Markit Insight "New climate actions
demonstrate ASEAN's ongoing decarbonization efforts, but challenges
remain", most Association of Southeast Asian Nations (ASEAN)
countries' net-zero targets are more aggressive than the prevailing
power development plans (PDPs) and it is yet to be seen how new
PDPs would match up. Carbon pricing has also only been implemented
in Singapore and Indonesia so far. At the same time, the region's
power demand still maintains a robust growth and 28 GW of coal
capacity is younger than five years, making them uneconomic to
retire by 2040. In addition, gas as a bridge fuel has always been
associated with issues such as insufficient supply and
infrastructure investment, as well as high cost.
Meanwhile in China, according to the IHS Markit Insight
"Installation rush in 2021 propels China to become the largest
offshore wind market globally", a rush to meet subsidy
deadlines resulted in 16.9 GW of offshore wind installations in
2021—accounting for over 80% of total global additions and
quintupling the country's domestic additon levels from 2020. The
number of offshore construction vessels also increased sharply in
2021, removing the key bottleneck in China's supply chain
capabilities. While record-level offshore wind additions will not
reoccur in 2022, the strong momentum is expected to continue during
the 14th FYP period.
According to the IHS Markit Insight "Spending on low-carbon
power will reach $530 billion in 2030, with a total of $4.4
trillion in cumulative spending between now and the end of the
decade", low-carbon power accounted for 30% of the $1.5
trillion capex in the energy sector supply side in 2021—up from
22% in 2015. Looking ahead, the overall capital investment
efficiency for low-carbon power technologies is expected to improve
by 30% by 2030, which means that while renewables are projected to
grow rapidly, spending grows more slowly. To meet more ambitious
climate objectives in line with net zero, however, annual
low-carbon spending levels would need to double compared with
current projections and reach about $1 trillion in 2030.
{"items" : [
{"name":"share","enabled":true,"desc":"<strong>Share</strong>","mobdesc":"Share","options":[ {"name":"facebook","url":"https://www.facebook.com/sharer.php?u=http%3a%2f%2fihsmarkit.com%2fresearch-analysis%2fglobal-power-and-renewables-research-highlights-april-2022.html","enabled":true},{"name":"twitter","url":"https://twitter.com/intent/tweet?url=http%3a%2f%2fihsmarkit.com%2fresearch-analysis%2fglobal-power-and-renewables-research-highlights-april-2022.html&text=Global+Power+and+Renewables+Research+Highlights%2c+April+2022+%7c+IHS+Markit+","enabled":true},{"name":"linkedin","url":"https://www.linkedin.com/sharing/share-offsite/?url=http%3a%2f%2fihsmarkit.com%2fresearch-analysis%2fglobal-power-and-renewables-research-highlights-april-2022.html","enabled":true},{"name":"email","url":"?subject=Global Power and Renewables Research Highlights, April 2022 | IHS Markit &body=http%3a%2f%2fihsmarkit.com%2fresearch-analysis%2fglobal-power-and-renewables-research-highlights-april-2022.html","enabled":true},{"name":"whatsapp","url":"https://api.whatsapp.com/send?text=Global+Power+and+Renewables+Research+Highlights%2c+April+2022+%7c+IHS+Markit+ http%3a%2f%2fihsmarkit.com%2fresearch-analysis%2fglobal-power-and-renewables-research-highlights-april-2022.html","enabled":true}]}, {"name":"rtt","enabled":true,"mobdesc":"Top"}
]}